I’m involved in all kinds of online networking sites, the longest time spent as a member on LinkedIn partly due to my time spent in the technology sector prior to becoming an agent 5 years ago. Occasionally there is a question posted that I just have to reply to because it is a question I am asked frequently and I feel very strongly about the answer.
Damodhar Mata of the United Arab Emirates asked this question about 18 days ago: “When you are looking to secure a mortgage, based on waht parameters would you select a particular lender?”
Here was my reply – and I was thrilled to see that it got voted “best answer” on LinkedIn:
“First of all, someone you trust and like. You’re about to turn over your most personal asset and credit information to this person. Also, I would suggest that it be a person not representing you as the agent in a transaction as this has the potential of becoming a conflict of interest issue. If it’s for a refinance this isn’t a problem. Some marketplaces make it very common that one person handles both sides but I am personally a skeptic of it as it puts more economic hardship on the salesperson if your transaction doesn’t go through and there is motivation to push it forward, perhaps when it shouldn’t be done. I rarely suggest clients go with the first person they talk to because it’s worth it to ask at least 3 firms for a GFE (good faith estimate).
Second, be sure to use a reputable firm. This can include direct lenders or mortgage brokers. Friends, colleagues and your agent can help you get referrals and references. Be sure to check if your state requires any kind of licensing for mortgage brokers and ask if the loan officer is licensed and have them show you the information – and check it. Washington State just recently implemented such a requirement and there are some folks out there that haven’t yet passed the licensing but they are still writing loans. This is a big no-no.
Loan programs available to you will vary depending on your credit score so know what this is BEFORE you go shopping for a loan. This will help with the process of getting quotes or Good Faith Estimates (GFE) without having to have a lender pull your credit on their own – this will save you potentially if you end up shopping to a few companies since loan officers typically must charge for a credit check AND you could start lowering your score if you don’t know or understand the rules around these requests for credit.
Knowing the terms of a loan outside of just the rate is important and is likely one of the biggest mistakes people have made in the past several years. Rate is one thing, but pre-payment penalties are another. Perhaps the loan you’re being offered requires points be paid to get the lower rate? Is there a teaser rate (oddly low) and then a spike in the rate later on, or it another form of adjustable rate mortgage (ARM)? When does this occur and what is the maximum that it can go up to, not only yearly but for the life of the loan?
Really, you need to know what your holding period is before choosing a loan anyway. Think you’ll be in an area for only 5 years? Well, maybe an ARM (if still available) at 5 or 7 years make sense. Think you might be around longer? Then perhaps a 10 year ARM, a 30-year fixed, or a 15-year would work better.
Figure out what you can comfortably pay and then find options that fit. Fixed rates are low enough still that these make sense for a lot of people. But they aren’t for everyone if there is a big disparity and your life or job situation isn’t right for it.
How much down payment you have will also affect your rate and what loan options you have to choose from. Many banks are requiring higher down payments than in the past several years so ask what you’ll need to have available and DO NOT assume it will stay the same – not in today’s financing market. It might go up, and we’ve seen it happening and we’re getting feedback from lenders that they’re seeing it too.
I hope this helps!
Links:
Rebecca Haas also suggests these experts on this topic:
Clarification added 18 days ago:
Because you work for a lending organization I assume you are polling the LinkedIn user base to see if you can get marketing data. I am responding from the viewpoint of how we counsel clients when they come to us to buy a home or investment property.”
When asking Damodhar about whether he was doing market research or otherwise he did report back to me that he is trying to understand how people make their considerations. When I looked a little further into it and paid attention to where he is doing business, the UAE, it struck a chord. This is one of the most expensive and lavish places on the planet right now. Oddly enough, I was just watching a show on Dubai last night on CNBC and it was fascinating. I get spam from all over the world with regard to real estate but watching this show has me rethinking next time how quickly, or if, I’ll hit the delete button on my laptop.
Anyhow, if you’re out shopping for a loan at this time either in the Seattle area or anywhere else around the USA, keep some of these things in mind that I mention above as you do your review of lenders. Happy Monday!
