Emily M Cross
The Muljat Group
How To Choose A Lender...
Posted on September 16, 2009
Question: I am a first time home buyer and have heard horror stories about the lending process. What can I do to make it smooth? Answer: Great Question! The loan process is, indeed, vital to a successful transaction. There are many lenders to choose from and the lending industry has seen a plethora of changes over the last year (rightfully so)! So, below find a list of questions to ask and why they are important! It's really a great idea to interview at least three lenders.
- Does your institution fund the loan or do you have to find the actual lender after I make application? This is one of the most important questions to ask!!! When you are working with an actual lender (not a broker) you are speaking with the institution that is providing the money. Because of new appraisal laws, this is even more important now. The new law requires that the appraisal be ordered by the lender. If the lender has not been identified and secured, the buyer risks paying for multiple appraisals for absolutely no reason (other than the broker shopping for a lender). Remember, a broker is a front for lenders they are not an actual lender and do not provide the funds to close.
- How often do your underwriters require additional information/documentation prior to funding the loan? A good loan officer rarely, very rarely, has a file sent back to them needing more information. Someone who is proficient and detailed and educated in their field knows what their underwriters need to approve the loan.
- How often has MDIA affected the closing date on your file? This is also a VERY important question to ask. The Mortgage Disclosure Improvement Act (MDIA) was enacted to protect buyers from the following scenario: Buyer gets Good Faith Estimates from varying lenders (this is how you shop for loans). Based on these disclosures (which are supposed to be in good faith and disclose all fees which affect the APR which is the actual cost of the loan), buyer chooses mortgage person A. Buyer navigates the purchase process and is getting ready to sign closing documents when they realize that the actual loan is much more expensive (usually with upfront fees) than their GFE revealed. Before MDIA, the buyer would simply be surprised at the closing table. Now, if the APR changes by more than 1/8%, mortgage person A now has to give the buyer Three days to view in person or SIX days if mailed the updated GFE's and TIL showing theupdated fees. Sounds reasonable, right? It is! But, the problem? At this point, buyer may a) no longer be protected by the Financing Contingency in the purchase and sale agreement, b) will not be able to secure a better loan due to time constraints and c) possibly fall out of contract with the seller which could be detrimental to a successful closing. If your lender is not having issues with delayed closings, you can bet that their GFE's DO disclose all fees and that MDIA is not affecting their transactions (remember it's only triggered when the APR changes by more than 1/8%).
- What are your fees? This is somewhat addressed in the above question but make sure you compare all fees points, transaction fees, recording fees, origination fees etc. etc. Each lender is different and rates change daily. Discuss whether or not, in your situation, it makes sense to buy down the interest rate (more cash out-of-pocket) or have a higher interest rate and fewer upfront costs.
- Do you continue to service the loan after closing? While it's common for banks to sell your loan on the secondary market, there are local banks that continue to service their own mortgages. There is no right or wrong answer with this answer but some people like knowing that they will have their mortgage with the institution of their choice (I'm one of these people:))!
- What kind of loan do you think is right for me? Ask each lender that get their opinion whether it's FHA, VA, Conventional 15 or 30, or even an ARM (yes these still exist and yes, there are a limited number of circumstances where they make sense).
- Are all of your appraisers local? Oh my goodness is this an important one!!!! As part of the new consumer protection legislation that has been enacted, HVCC (Home Valuation Code of Conduct), lenders themselves no longer order the appraisal they go through a clearing house of sorts. However, each lender has an approved pool of appraisers. Some lenders have a pool that extends way out of our area (like Tacoma). The problem? THEY DON'T KNOW OUR MARKETS and are causing multiple headaches right now! I can't tell you how many people I've heard complain about out of area appraisers severely undervaluing property (thus killing a deal unnecessarily). Make sure, who ever you go with, has a pool of LOCAL appraisers only!
- Of course, make sure you discuss with all of the lenders your personal circumstances gift money, job changes, etc. etc. etc. In order for you to get an accurate picture of what each mortgage person can offer you, make sure you are frank about your circumstances..
