Friday, December 23, 2011

Selecting a Mortgage Lender

With the purchase of Real Estate ranking as one of the most important investments of your lifetime, you want to work with a lender that will offer you the best products and services that are available.

Think local. While online lenders can and do provide great rates, products and services, many borrowers prefer to be able to sit across a table from their lender and have a more personal experience. At the closing, many borrowers like to be able to sit across the table from both their lender and their real estate attorney. Should there be issues, both are at hand to either answer questions, or get in touch with people that are able to find a solution.

Look for referrals and see if anyone you know or your real estate agent knows has worked with a local lender. Their positive experience will almost surely mean the same for you.

Through what types of companies may I borrow money? This may be confusing since, as the borrower you have several choices where to go. They are to a bank, to a broker, or to what is called a mortgage banker.

Banks: When most people think of banks they think of what is called their retail channel. This means that you would go into the branch, or possibly online, apply, and have the bank process your loan in-house. Banks fund their own loans with their own money. This is a great way to get a loan, you are able to walk into a branch and sit down with a mortgage representative and have all of your questions answered.

Brokers: A broker provides similar services to what a bank does, but there are a couple of differences. First, they will shop the different lenders that they work with to find you the best rates and programs that fit your needs.

The difference at the closing table between the bank and the broker is that the money that is wired into the closing is coming from the lender, versus the brokers themselves. This is how a broker works. Keep in mind that the broker and the retail branch are actually competing against each other for your business, even through the lender may be the same. This helps you to benefit from competitive rates.

Mortgage Bankers: Mortgage Bankers operate a little differently than either banks or brokers, but have traits of each. They originate loans on behalf of lenders, as do brokers. Similar to banks, they underwrite and fund their own loans. And similar to brokers, they are able to work with multiple lenders, giving them choices as to where to place their clients’ loans.

Read the Disclosures

By law, and this has been the case for many years now, lenders must provide you, within three business days, two documents that you will really want to take a look at. These are the Good Faith Estimate (GFE) and the Truth-in-Lending Disclosure (TIL). These are two of the most important disclosures that you will see in the entire mortgage process.

Good Faith Estimate: This document is important because it lists all of the fees and costs that you can expect to pay should you decide to go with that particular lender. Some of the most important items that you should pay attention to are those related to origination costs and lender fees. You can then compare these costs to other lenders, which you should most certainly do.

Since January of 2010 as part of mortgage reform, many of the fees on this form are unable to be adjusted. This is to avoid surprises at the closing table where borrowers have new and/or adjusted costs put on them. Some of the costs have no limit as to how high they can go. These other costs and fees are mainly those that the lender has no control over, such as title company fees, which are controlled by the seller side in a purchase transaction.

Truth in Lending Disclosure: This document shows your Annual Percentage Rate (APR). This is your interest rate with your costs rolled in. This will always be higher than your interest rate. Given the same interest rate on the same product from two different lenders, the lower APR of the two will reflect the lower closing costs.

What to do next?

After having spoken to several lenders and reviewing the documents that they have provided to you, it is time to make a decision. While they may have different rate and cost scenarios, you need to select one. Part of what goes into making a decision will be the level of confidence that you have in them after speaking to them, regardless of what they offer.

As always, input from your real estate agent would be a good thing, as they have probably worked with some of the mortgage lenders that you are considering. They would be glad to help.

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