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How to Find and Work Effectively With a Lender

How to Find and Work Effectively With a Lender
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As a home buyer, you’ll be shopping for more than a house. You’ll also be shopping for a mortgage. Finding the right lender can save you money and stress, but first you have to know what you’re looking for — and how to find it.

Who’s going to loan you this money?

There are three types of lenders you’ll want to consider.

Traditional bank: An FDIC-insured institution will sometimes offer you a discount if you have your checking or savings account with them. They can either keep the loan or sell it on the secondary market. You’ll deal with a loan officer who gets a base salary and probably a small commission or bonus for writing your loan.

Mortgage bank: These banks don’t offer anything but mortgages. They may keep your loan or sell it. If they sell it, they may sell the whole shebang, including the servicing rights, which means you’ll be dealing with a whole new company. Or they could sell the loan but maintain servicing or keep the whole thing. You’ll also deal with a loan officer who likely gets a salary and commission.

Mortgage brokers: Why would you use a mortgage broker instead of dealing directly with a lender? Because brokers can shop across many banks to find you the best rate. They are paid a commission known as a “yield spread premium.” You’ll be able to see just how much that is in your loan estimate. Mortgage brokers got something of a black eye in the housing crisis and new regulations have prompted banks to bring more of their loan sales in-house. This has largely served to weed out all but the best and most experienced mortgage brokers.

Shop around

Friends and family may have good recommendations, and chances are your real estate agent has brokers to suggest. But don’t stop there. Zillow has a tool you can use to quickly find a local lender in your area with a history of positive customer reviews. Zillow also lets you shop for mortgages by getting dozens of quotes from multiple lenders that you can sort by whatever matters to you the most: APR, interest rate, monthly payment, lender fees, lender rating and more. If you have a pretty good idea of your credit score, the results should be very accurate.

Don’t just assume you know what rate a lender will offer based on an advertisement that isn’t specific to you. Rates are heavily influenced by your credit score and other personal factors, so until the lenders you are considering actually take a look at your financial picture, there’s no way to know what they will offer.

You may be worried about having lenders “pull your credit” when shopping for a mortgage. After all, credit inquiries lower your credit score, so a slew of them could tank it, right? Fear not: The credit scoring companies realize you probably aren’t going to take out five mortgages all at once. In fact, multiple mortgage-related inquires made within a single 14-day period count as just one for the purposes of your credit score.

So go ahead and apply with as many lenders as you have the patience for. Within three days of applying, you should get a loan estimate, in writing. You can use these to compare costs. Once you have good quotes, it doesn’t hurt to check with your bank or credit union to see if they can match or beat the other offers.

And of course, remember the 14-day grace period applies only to mortgage inquiries. This is not the time to start applying for new credit cards!

Make it personal

Whether you contact a broker or go directly to a mortgage lender, pay attention to how they respond when you initiate contact. Can you talk to a real person who will give you a name and number to call back with more questions? Are they polite, helpful and quick to reply? Do they honor the quote you saw online or do things suddenly start changing when they’ve got you on the line?

This is also the time to assess their expertise. Are they happy to help explain your different choices and educate you on the process, or are they impatient? Do they initiate a discussion about your timeline or how and when to lock in a rate? Do they explain how or when rates will change?

And, importantly, do they take the time to get to know your situation and your needs? There are a lot of different loan products out there, and a good lender will be able to suggest one to fit your needs, even if it’s not what you originally asked about.

Of course, there are a few questions you should ask every potential lender:

  • How much time do you need to complete the mortgage? (A lender who needs 60 days won’t be much use to you if you need to close in 45.)
  • When can I “lock” my rate?
  • How much are discount points and should I consider them?
  • What are my options with fixed or adjustable-rate mortgages?
  • When will my monthly payment be due?
  • How much will my monthly payment be?
  • What are the closing costs associated with the mortgage?
  • Who do I talk to if I have an issue once the mortgage closes?
  • Is there a penalty for prepaying my mortgage?

All of those should be answered in your loan estimate, but your broker or loan officer ought to be able to tell you informally over the phone as well. Whether it’s a broker or a loan officer at a bank, remember you are dealing with a salesperson trying to sell you their loan product.

If the lender isn’t providing good customer service when they are trying to make the sale, things probably won’t be any better once you’re too far down the road to switch lenders and still meet your closing deadline. You want someone you can easily reach with questions and who will promptly return calls when they aren’t available. There’s nothing more nerve-wracking than not being able to reach your lender in the week before closing.

Review the reviews

Zillow’s lender directory gives you an opportunity to read reviews from past customers, including detailed descriptions of their experience. While it’s never a guarantee of how your experience will be, you can take comfort in knowing the reviews posted on Zillow are moderated by a trained team that evaluates each one before publishing.

If a lender gets almost exclusively rave reviews, it probably bodes well. Likewise, if the lender with the lowest rate comes with a lot of negative reviews, it’s worth deciding how much that .25 percent decrease in interest is really worth to you. Chances are you’ll be working with your lender throughout the home-buying process, so their willingness to provide excellent customer service should be a key factor in your choice.

Your job

Just as you want a lender who is responsive and forthright with numbers and figures, you have to keep up your end. When they ask for more income verification or other documentation, get it to them quickly. If it’s not immediately accessible, let them know when to expect it.

Likewise, don’t try to fudge your numbers early on to see if you can get a better rate. They will pull your credit. They will require income verification. Save everyone, including yourself, a lot of time and frayed nerves by being honest and upfront. If you have issues on your credit report that you can explain, do so, and ask the broker for advice on how best to deal with it. Sometimes just a letter explaining the circumstances can help you get a loan approved if it’s on the bubble.

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