How to Choose a Home Lender
Once upon a time, getting a home loan was as simple as walking down to the local bank, sitting down with the manager, shaking hands and… presto! You’ve got a home loan. Today, with the advent of online lending, times have changed. Borrowers are now spoiled with choice! With so many different lenders beating a path to your door and giving customers so much different information, how do you know when you’ve got the right loan for you?
Well, wonder no more!
The first thing to keep in mind is that, because access to the competition has become so easy, the cost to buy a home is going to be very similar across different lenders. If one lender really costs half as much as everyone else (as some companies would have you believe) they would drive all the competition out of the market. Despite differences that you may see on your up-front loan estimate, all major lenders will end up within a couple hundred dollars of each other at the closing table. Those couple hundred dollars, though, will often mean the difference between getting a loan done quickly and painlessly, with a knowledgeable loan advisor, vs. an exhausting process with a less-equipped lender.
When looking for a mortgage lender, quality matters! Make sure you are doing your research. Look at online reviews. With rare exception, purchasing a home is the largest purchase you will ever make. Ensure that the company you are talking to is going to do what they say, the right way, and in a timely fashion. LendingTree is the best platform for researching different lenders and getting the inside track on how their clients felt about working with them. To get started, check out the thousands of reviews for Royal United Mortgage.
So, now you’ve done your homework and you have two different offers sitting in front of you from two reputable lenders. They both sound pretty good, but one has a lower interest rate. Problem solved, right? Wrong! Interest rates can vary day-to-day, and change depending on your loan structure. When comparing loans, there are four major factors to keep in mind.
- What did each company put in writing? A Loan Estimate is just that: an “estimate” of your new loan, and different lenders will take more liberties than others when building your estimate. Think back on the last time you had several companies bid for a home project – it’s likely you had some companies give you bids that were clearly too low to be real. Unfortunately, shopping for a mortgage can be a similar process, so you need to keep your wits about you. Online reviews should give you some indication of lenders that are in the habit of playing games like this.
- How much cash are you bringing to the closing table? Buying a home takes some money. You’re going to pay your first year of homeowner’s insurance. You’ll have title work to pay for. The county that you live in is going to charge to record your new deed. A very common tactic in the industry is to bury these costs or to not even bring them up until you’re already committed! The best defense is to arm yourself with as much knowledge up front, so you know what to look for on a Loan Estimate.
- Who is going to treat you the best? A home purchase can be a very complicated process. Your lender needs to be able to communicate! Not just with you but with your realtor, the seller, their realtor, and the title company. Then that lender needs to be able to keep you in the loop. Communication is the biggest key to getting your loan closed on time and with as few headaches as possible. If you had to wait a week to get a pre-approval letter, what is the communication going to look like when you’re already committed to a lender and they’re no longer trying to earn your business?
- Finally, the payment. Both companies have given you written offers, all the costs are accounted for and both have done a great job keeping you informed, but one offer is a hundred dollars less per month! Make sure that you’re comparing apples to apples. A common difference is escrow. If one payment includes your taxes and insurance but the other doesn’t, or is using different estimated amounts, make sure you’re accounting for that difference. However, the most common difference is going to be the term or duration of your loan. The term is by far the most powerful factor in determining what you will pay over the life of your loan. No matter what the interest rate is, making twice as many payments are going to cost more. If you have a payment in front of you that seems much lower than the competition, it may be that you will be paying it for a longer time than the competing offer.
By paying close attention to these four things and doing a little bit of research up front, you can be sure that you are going to put yourself and your family in the best possible financial position for years to come. Happy borrowing!