- Don’t just look at rates; Lenders can manipulate rates
- Get the Loan Estimates from multiple lenders to compare apples to apples
- Local lenders are often better prepared and resourceful than online lenders
Choosing one lender over another can be very confusing, actually. Many shoppers erroneously think it is all about the rate, and they consequently go with the lender who quotes the lowest rate.
It’s not all about the rate. Here are some tips when choosing between lenders.
Shop loan originators that are local. They may be part of a national franchise, but you want the loan originator themselves in your town so that they know your Realtors®, know your insurance rates and taxes and typical seller concessions. Local lenders are highly preferred over out-of-state, often online companies. Especially in the Fort Hood area where the VA loan makes up over 50% of transactions, local lenders are proficient in the VA loan versus national lenders who aren’t familiar with it.
It’s not about the rates
Well, it is, a lot. But lenders are able to play all sorts of games with the rate and costs of a loan. They can, for example, offer a lower rate, but by charging the buyer origination points on their loan, which they wrap into the financing or closing costs. In spite of the lower rate, they may actually cost you more. The only way to compare lenders without the games is to compare Loan Estimates, which I discuss below.
It’s not all about the money
A more expensive lender may have attributes worth more to you. While lending has a lot of black and white rules, there is a gray area that proactive and experienced loan originators can negotiate, and get you over obstacles. For example, many underwriting guidelines can be negotiated if your loan officer knows how to write it up. Sometimes a loan originator who knows the right buttons to press with an underwriter is the difference between closing and not.
The lending process is also the most time consuming part of buying a home. A proactive and energetic loan originator that can get to closing on time can easily be the difference between crossing the finish line and not, and therefore might easily be worth a little extra.
Don’t assume the builder’s lender is the right lender
Yes, the builder and their lender may have a special deal between themselves to help pay off closing costs. And yes, often the builder’s lender is an option worth considering. But they’re not always the best option. For example, the lender may not participate in Tex Vet, which may be far more financially rewarding to you than the builder’s lender’s terms. Also, seller concessions with a builder are negotiable, too, and it is worth a try to get the builder to contribute to your closing costs even if you have a lender that is not their preferred one.
Don’t’ assume your Realtor® can recommend the right lender
As a Realtor® who recommends lenders, and recommends asking a Realtor® about lenders, this may seem a little hypocritical. But as a failsafe, it is a good idea to not take your agent’s word for granted. Lending and loans is not a Realtor’s® core competency, and the lending rules are so vast and complex, that it is not practical for an agent to be an expert. Do some of your own due diligence, and then run what you find past their agent. Get their feedback and recommendations, but don’t limit yourself to a real estate agent’s loan expertise. Again, get multiple quotes – multiple Loan Estimates, and then compare!
Remember, it should never cost any money to get a preapproval or Loan Estimate from a lender. In fact, you should never pay your lender anything. They will get their fees at the closing table when you actually buy the home.
You are also not bound to an agent who supplied your preapproval, even after you are under contract for a home. It is a very good idea to get the lender decided upon as early in the process as possible (remember, the lender paperwork is the biggest hold up during the process), but it has sometimes been necessary to switch lenders midstream. This is possible if the one you are working with is just not working out, or another lender provides better options.
What is a Loan Estimate?
This is a document mandated by the Consumer Financial Protection Bureau (CFPB) that strips away all the shenanigans and gives you an easy way to see exactly what a loan is costing you. Better than that, it is the same for every lender, meaning you can easily compare each lender’s bottom line without the smoke and mirrors. (Note: previously this document was called the Good Faith Estimate, or GFE). The lender must give you one if you’ve gotten a preapproval and ask for it. Some may say they have to have a contract first – that is baloney.
Click here for a real life example of a loan estimate with the personal information removed, courtesy of Tanja Allen with Fairway Independent Mortgage (a local lender in Harker Heights whom I highly recommend!) Important elements to compare are principal and interest, origination charges, loan costs, and terms. You also want to make sure that the lenders are using the same estimates for taxes and insurance, and if not, adjust those numbers so they are all the same. Online lenders have a habit of underestimating Texas property taxes.
In this example, the buyer is estimated to need $1 to close. That’s pretty funny. I imagine the bank would look at them pretty funny when they showed up asking to pay $5 so they could get a certified check for $1 for closing.
Check out multiple lenders, compare the Loan Estimates, weigh your Realtor’s advice, and go for it! Doing your due diligence on lenders is important and, thankfully, not too difficult. And a great place to start if in the Fort Hood area is with these lenders I highly recommend!