Choosing Lender - 1st Time Home Buyer
September 17, 2012 9:34 AM   Subscribe

My agent asked me to select a lender I want to work with to get the loan process kickstarted. She feels we're getting close to get an approval from the second lender (the first lender already approved) on a short sale single family home and wants to get my file processed and ready by the lender of my choice. I'm struggling a bit with the criteria as they seem to combine both hard numbers (interest rate, fees) and less quantifiable matters like how to I feel working with a certain lender etc. Appreciate your advice on a no-nonsense criteria and how to best choose / compare lenders. Thanks!

Below is a list of questions I've compiled from various forums so far - anything else I should ask the lender?

1 interest rate (preferably APR) including mortgage insurance (we pay 10% down)
2 closing cost
3 escrow closing time
4 two/three referrals from current clients
5 how many years of experience do you have? How many loans have you serviced in the past year?
posted by Michal to Home & Garden (5 answers total) 4 users marked this as a favorite
You are pretty much on track, but you want to be sure that you are comparing apples-to-apples, which gets a little tricky when mortgage shopping. I think most buyers consider "closing costs" to be any cost that's not the mortgage payment, taxes, and insurance, but, depending on your state, there are other costs that might come into play. So the lender you are considering will say, "oh - yes - closing costs are $XXXX" but that doesn't include costs $Y and $Z.

Pay special attention to the various costs. These, and the cost of mortgage insurance, is where you will find the most variety in pricing. (Especially mortgage insurance!! I cannot believe the variety in pricing there. Make sure you understand the requirements there, too.) It seems to me -- a finance-professional but not in the mortgage industry -- that lenders try to put together loan packages that look like the lowest monthly cost to the borrower. However, when you dig into the numbers -- especially all those costs tacked onto the front-end -- the loan with the lowest monthly payment may have the highest total overall cost. Do you know how transfer taxes and such work in your state?

I would not put too much weight on the "less quantifiable" matters. The bank can sell your loan to anyone at any time and your servicer could be different from the owner of the note. You have no control over these factors. Certainly don't go with any lender that strikes you as sketchy. That said - in your case, the soft factor I would consider is your lender's attention to you during this process. Short sales can take a long time.

As an aside, there's a lot of (well-deserved) anti-bank sentiment on Metafilter, and I am sure someone is going to pop in here and tell you to go with a credit union. I did some serious shopping around for mortgages this past year. My spouse and I appear to be the perfect borrowers, we have 20% down, blahblahblah, and the credit unions I spoke with (including one that we do business with) offered us less favorable terms and higher costs than other banks did. So YMMV there. This is why I suggest digging into the numbers before considering things like "number of loans serviced."
posted by stowaway at 10:26 AM on September 17, 2012

Well, I came here to suggest looking at credit unions. As stowaway suggests, it is good to shop around. When we shopped around we found that our credit union had lower costs and a reputation for good service. That may not be true in your area, but it is worth looking at credit unions.
posted by medusa at 11:03 AM on September 17, 2012

stowaway mentioned that you can't do anything to prevent your lender from selling your loan, which is true. But you can ask/research how likely this is to happen.

I was happy with my decision to bypass a large, national lender if favor of a smaller, local bank that had been in business for over a hundred years and could boast the fact that it had never sold a mortgage. There are banks that aren't credit unions, but are invested in their local communities.
posted by instead of three wishes at 11:21 AM on September 17, 2012

When I chose lenders, I asked for GFEs (Good Faith Estimates) from all of them, which they will give you after doing a credit check. The catch here is that if you get multiple credit checks within 30 days (I think), they count as one credit check on your credit report, and it should be valid for 90 days (so how soon do you think you will close?). Also, this costs the lender money (but is only charged to you if you close with them) so some of them might be resistent in running a credit check.

But once you have that, they can give you very solid numbers. Things that might look different but actually should be the same number: homeowner's insurance, escrow costs, and possibly some other things.

Also keep in mind that you can always pay points (more interest rate) to pay more or less cash at closing. So ask for the 0-point cost GFE.

2 out of the 4 places I asked had the same cost down to the dollar. They were also the cheapest. I just chose the one that seemed more patient with my questions.

Aside from that, choose the person who is patient, knowledgeable, and willing to come up with creative solutions for what you need.
posted by ethidda at 11:32 AM on September 17, 2012

Points does not mean "more interest rate." Borrowers pay points to reduce the interest rate they pay over the life of the loan. If a borrower chooses to pay points, they will pay more cash at closing, but will pay less in interest over the life of the loan. (Basically, you are buying yourself a lower interest rate.) Amortization tables are your friend!

Lenders are required by law to provide a GFE, but not necessarily during the pre-qual stage. If you do not already have an agreed-upon purchase price (between the buyer, seller, and the first & second mortgage holders), the bank is not going to provide a GFE since they do not yet know what the purchase price is really going to be. However, they can/should provide you with a loan worksheet. When I was shopping around, I got the different banks to provide me with loan worksheets for a variety of scenarios (various PPs, different DP amounts, etc). If you know what your credit score is, and you are dealing with reputable lenders, you might not need each bank to run your credit -- they can give you mortgage pricing if you give them accurate info. (Which of course they will verify once underwriting of the loan begins.)
posted by stowaway at 11:47 AM on September 17, 2012

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