The challenges of finding a lender are not due to lack of quantity; plenty are in the market, competing to get your business. Rather, the hard part is choosing one that will keep their word and provide stellar service.
The first step is to realize the difference between key entities you’ll come across: Banks, mortgage companies, loan officers, and loan brokers. Banks are financial institutions offering all kind of services, while mortgage companies offer only home loans. Typically, once a loan is closed, mortgage companies will sell it to investors so they can have more money to lend to other homebuyers, which keeps the mortgage system afloat.
Loan officers work for banks and are able to offer only the loan products their banks offer. Brokers work for themselves and have relationships with several lenders, so they can scout the market for the best deal. However, they charge a commission—generally 1 percent of the loan amount—so you could be paying more at the settlement table.
Consider also your builder’s affiliated lender. Many builders have official and unofficial relationships with lenders they trust, or their own in-house lending operation. These affiliates may charge a bit more, but they usually have better control of the process.
Each option has its own strengths, and these days, there isn’t a drastic difference in the rate each charges. So, how do you narrow down the list of potential lenders?
Talk to people who have done this process before! Friends and family who have secured a lender before are a great place to start getting ideas. Speak with your builder as well, and get information not only on who their preferred lenders are, but also what parameters and qualifications they look for in lenders.
Questions to Ask Friends and Family
Focus on their individual experience with the lender, and the customer service angle.
- Did the lender close on time and at the same rate and terms as originally quoted?
- Did documents you were asked to supply go missing?
- Were there any last minute hitches? If so, what were they?
Questions to Ask Lenders
Once you’ve got a list of a few lenders you’re interested in, get to interviewing them. Keep in mind that you don’t have to fill out an application with the lender in order to ask these questions, and there’s no bad questions here—be as thorough as you need!
How will the lender provide status updates?
You’ll want to know where your application stands at any given time. This can range from being notified when all necessary documents have been received to final approval and distribution of the loan.
Will there be a single point of contact, and if so, who will that be?
There’s nothing worse than chasing down an unresponsive lender. Be sure you understand what their communication process is and have the direct information for who will be handling your application.
What are your product options?
This is where you’ll want to get into all the details of the different services the lender provides. What loans are available, what are the repayment options, how are those determined, what are the interest rates—there’s no question too big or too small to ask. You want to be sure to understand everything, so don’t shy away from asking anything to be reexplained.
What is the pre-approval process?
First off, pre-qualify and pre-approve are not interchangeable terms, so be sure you’re getting accurate information. Unlike pre-qualification, being pre-approved guarantees the amount a lender is willing to provide. Bringing a pre-approval letter to your builder shows that you’re serious in purchasing a new home, and can help move the process along more quickly.
Not offering pre-approval doesn’t have to be a deal breaker, but the process is helpful when it exists.
How do you accept the required documents?
A loan application involves lots of paperwork: Tax returns, pay stubs, identification documents, and more. In this technology age, most of these documents are accessible online, but there’s no guarantee a lender will accept them electronically. Be sure to determine if physical documents are required.
Are you local, or is the underwriting department located somewhere else?
Considering how much markets vary from area to area, you want to work with lenders from the area. Familiarity with the local market and legal requirements can prevent challenges down the line.
What will be the total cost for the loan?
You may be signing for a loan of a certain amount, but ascertain whether the bottom line includes additional fees. These can be closing costs, interest payments, and more.
Will you as the lender keep the loan, or sell it on the secondary market?
Either option is okay here, but knowing ahead of time is helpful. This way, when you’re making payments and tracking statements, you know what company name to expect to see as the administer of the loan.
Are tax, insurance, principal, and interest paid monthly or annually?
Some companies will require that you pay these per month, but others will allow you to pay one lump sum per year that they will disperse each month for payments. This decision primarily comes down to personal preference and how you choose to budget.
Have you had any complaints lodged against you?
No one is perfect, but when dealing with large amounts of money and long-term commitments, it’s better know all the faults upfront. Check with the Better Business Bureau in your area, as well as the Consumer Financial Protection Bureau; the latter is a federal agency that tracks complaints against lenders.