Shopping for a Mortgage
Shopping for a mortgage is often the most daunting as well as the first step when it comes to buying your home.
When interest rates are low, you may think of skipping this step as an unnecessary process, but when rates go up, most buyers begin to shop for the cheapest rates. Whichever the case, you should always shop for a better rate! Even a quarter of a point can mean thousands in savings over the term of the loan.
While mortgage shopping can seem like a big hurdle to get past, here are a few simple steps to help you get through to the other side!
Step 1: Find Different Lenders
Locals lenders you know and trust: One of the best sources is lenders that have been referred to you by friends and family you trust. They'll have direct experience working with a lender and can give you first hand experience.
Ask your real estate agent: Most experienced REALTOR®'s will have a network of lenders they have worked with and can refer you to the right lender for you. For example, lenders who specialize in VA loans, FHA loans, Conventional and Commercial loans.
Online reviews: Lastly, the place we all go for feedback before working with someone: Online Reviews. Check your local banks and credit unions for their mortgage officers and see if they might be a right fit for you.
Step 2: Schedule an Introductory Meeting
Once you've narrowed down 3-5 lenders to speak with, schedule your initial meeting with them!
During this meeting, you will want to ask the loan officer any questions you have regarding the process. Don't worry if your questions seem too basic or redundant, make sure your questions are answered to your satisfaction. Pay attention to the lenders communication style, you will want to work with someone who is the right fit for you.
To avoid problems, here are a few sample questions to keep in mind:
Fact finding about the process:
Would you take me through the process?
What should I expect?
What will I need to supply?
Determine compatibility with the loan officer or mortgage banker or broker:
What’s your communication style? Are you willing to communicate virtually?
When would I work with you? Are you available in the evenings?
Will I work with you or a member of your team?
What do you think of my time frame to get to closing?
What if any problems do you foresee?
Track record of loan officer and lender:
How long do loans you process typically take to close?
How would you expedite the process if there’s a tight time frame?
About what percentage of loans you work on close on time?
How many loans have you worked on that haven’t closed or haven’t met deadlines?
What’s the biggest problem you’ve had with a loan and how did you fix it?
You should also use this meeting to provide the lender information about your situation. Are you a salaried worker or sel-employed? How long have you been working? When do you plan on purchasing a home?
Lastly, you may be concerned about the impact on your credit score. Rest assured that multiple pulls on your credit by multiple mortgage brokers will typically only count as one hit if they are pulled within the span of a few weeks.
Step 3: Get and Compare Financial Information
The best way to compare financial information is by asking the lender for a federal form called a loan estimate or a precursor form called the fees worksheet. Both of these forms will show you a breakout of closing costs, which include fees like the origination charges in the lender section. Make sure the loan terms and interest rates are similar when comparing these fees. For example, one might offer a mortgage rate of 5% with $1500 in origination fees while another may not charge origination fees but provide an interest rate of 5.125%. If an exact comparison cannot be made, it is up to you to decide whether a lower interest rate matters to you more, or keeping your closing costs down.
Note: A Loan Estimate is different than a fees worksheet. A fees worksheet can be used to make direct lender to lender comparisons whereas a loan estimate includes other closing costs that will change based on the title company chosen. The numbers on a fees worksheet are not locked in, you would have to complete a loan application and obtain a loan estimate from the lender before being able to lock in a mortgage term and interest rate.
Step 4: Think About Timing
Another thing to note is the lock rate period the lender provides. If a lender can only lock in a rate for 4 weeks, but you know closing on your home may take longer, have a discussion with your lender to see what options are available to you.
Step 5: Apply for Loan Approval Before Looking for a Home
You should apply for a pre-approval before searching for a home to avoid setbacks and issues that may come up later. A pre-approval will help you understand your maximum home buying power based on income, however, you can also ask your lender to provide you with a maximum buying price based on the max monthly payment you're comfortable making.
Beyond the pre-approval, ask your lender if they will provide a loan approval prior to going under contract. Many lenders may not do this (no problem if they don't). However a loan approval may be advantageous in that you will have gone through the underwriting process before even finding a home, leaving you with room to negotiate a quicker closing date for your offer when you do find your home.
You may have to invest some time and energy into finding the right loan officer and mortgage for you, but it will all be worth it in the end and could save you thousands over the life of your loan!