What’s Important in Choosing a Mortgage Lender?
Clients often ask us how to pick a mortgage lender. Naturally, most people are looking for the best rates, but interest rates are less important than one might think. In fact, most lenders’ actual rates are very close to one another, typically within a tenth of a percentage point when the loan rate is actually locked. Lenders’ advertised rates may differ, but your final rate is rarely going to be the advertised rate. Loan origination fees, discount points, and other mortgage costs can be a greater consideration in choosing a mortgage than rates. To learn more about important loan terminology related to loan costs, see my article titled “Frequently Asked Questions About Mortgage Loans”. But first read below for what’s really important when choosing a mortgage lender:
Combined with experience, this is the most important factor in choosing a home mortgage lender. As your real estate agent, we can make a good recommendation based on other client’s experiences and upon your specific situation. Don’t forget to ask friends and family members about their experiences, but keep in mind that their personal situation (creditworthiness, what type of purchase was being made, their type of employment) also greatly affected their experience with their lender.
This is absolutely critical! The mortgage market has changed dramatically in the past five years. Working with a loan officer who is up-to-date with mortgage regulation changes and has an excellent relationship with her/his underwriter and upper management is crucial. Problems often arise when a surprise factor is discovered during the loan process – sometimes this has to do with the property, sometimes it has to do with the buyer. This was a much simpler process 10 years ago, but changes in the mortgage market have made it a “bumpier ride” for borrowers. Choosing a lender with the experience and clout to deal with issues that arise is key to a smooth home purchase today.
Location, Location, Location
Sound familiar? It matters in lending, too! It is generally best to work with a lender who is located in or near the city or county in which you are purchasing. Lenders in different areas of the country have different standards and experiences with property. For example, if you were to purchase in Hawaii, where hurricanes, volcanic eruptions, flooding, and earthquakes are common, it would not be the best idea to use a lender in, say, North Dakota. Regional risks are considered in lending, and if your loan officer is not aware of special regional issues they can become a complicating factor later in the mortgage process. Also, out-of-area mortgage lenders typically use out-of-area appraisers, who are often not knowledgeable about real estate markets outside their typical work area. We’ve experienced this problem in several deals in the past couple years.
For these reasons, we also don’t recommend online discount lenders. Online lenders offer less accountability and are more difficult to communicate with than a lender in your own area and time zone. Needing to sign an original copy of a document last minute is a fairly common event when buying a home. If your lender is not local it can be a hassle and an extra expense to mail documents overnight. As technologically advanced as we are in the US, truly “paperless” lending really hasn’t been implemented yet.
Mortgage Costs, Rates, and Unusual Properties
Note that we’ve listed this last? That’s because the above three qualities are much, much more critical to having a good experience in obtaining your home loan. If you are working with someone who is trustworthy, your mortgage will likely cost you almost the same amount from one mortgage officer to the next. Most loan officers work with a similar range of lending companies, and are dealing with similar rates and loan qualifications.
A potential cost difference can be found between credit unions and other types of lenders. Credit unions who make mortgage loans typically charge a bit less than other lenders. However, as institutions, they are not as experienced as mortgage bankers in home mortgage lending. Our experiences with mortgages through credit unions have been very mixed, resulting in some very disappointing outcomes. They can be summed up in this way:
- If you are a payroll (W-2) employee with a stable job history, good credit, low debt, and a simple tax filing history, then you will likely be satisfied using a credit union to buy your home.
- However, if you are self-employed, or have not had a very consistent job history, or have an unusual source of income, or a less-than-very-good credit history, or complicated debt, or file your taxes in an interesting way (such as through a corporation), then using a credit union is not your best choice.
- If you are working with someone who is experienced, they will know if a property type will be hard-to-finance, and know if they can complete the loan. If you are purchasing an unusual (aka, hard-to-finance) type of property, then it’s in your best interest to ask your real estate agent for help in finding financing. We can guide you to your best financing options and save a lot of time and frustration.
Hard-to-finance properties include:
- A manufactured home on land or not
- A fixer-upper home, or home in need of significant repairs
- Country property with fifteen (15), or more, acres of land
- A home with a very large shop, a business, or a horse-riding arena
- A property with more than one home on it
- A multi-family dwelling (like an apartment complex) with five or more units
- Any type of commercial or industrial property
- A boat house or Forest Service cabin not on it’s own land
For more information contact Rosemary at (541)485-5212 or (541)686-2855 or Email by clicking here: