Ask the Expert: Tracy Kearney, Guaranteed Rate
Aren’t All Lenders the Same?
Before joining the mortgage financing industry I didn’t even think to ask the question, “Aren’t all lenders the same?” – I simply assumed they were! When my husband and I prepared for our home search, all of our focus, energy, and time was entirely committed to finding the right neighborhood, the right number of bedrooms, an incredible floor plan and, of course, all at a price we could afford. It never even occurred to us to vet a lender. We simply picked up the phone and dialed the number of the bank who serviced our checking and savings accounts and declared “we are ready to purchase a home – what are your rates?”
After receiving what appeared to be a competitive rate offer (we had compared rates on-line) and a preapproval for an amount “we could afford”, we began hunting. Within days of our initial conversation with our lender we found the home of our dreams. We were excited to call our lender and exclaim “we’ve made an offer and we’re ready to lock in – let’s go for it!” At that very moment, our excitement turned to confusion, frustration, and sheer disappointment. The very same lender who preapproved us at a particular price point was now telling us that we did not qualify for our “dream home” (which was $25,000 below the approved amount) and, ultimately, we were unable to purchase the home. Our lender had not advised us to consider the property taxes during our search and the taxes were too high on this property for us to qualify.
One of the most basic and primary details in any home purchase is having a plan to pay for it and knowing what you can legitimately and comfortably afford. This is why it is important to work with a lender that not only has a comprehensive understanding of the mortgage process, but also takes the time to understand your personal situation and goals. That lender should also help you understand the process, provide you with loan product options specific to your needs and, most importantly, ensure you fully understand the liability and responsibility you will be assuming before you commit to your loan product.
When choosing a lender, here are a few important considerations to keep in mind, as you begin your search:
Is the lender asking you the right questions to determine the best loan product to meet your personal goals? Questions such as:
- Where are you living now? Do you want to stay in your current neighborhood, or are you looking elsewhere?
- How much have you saved for a down payment? Is anyone going to help you, by gift or loan with that down payment?
- How much money do you currently spend monthly on your rent or mortgage?
- How much money will you be comfortable spending monthly in your new home?
- What price point have you been considering?
- Are you looking to purchase a single family home or a condo or townhouse?
- How long do you plan to stay in this home?
- Are you a first time buyer? Are you a veteran?
- Do you own other properties? Will you be living in this home or are you looking to treat this as an investment property?
- How is your credit?
- How much do you make annually? Are you self-employed?
The answers to these questions will determine what loan product is right for you. For example, if you are a first time buyer or a veteran, there are loan products available to help with your down payment. If you are planning to use gift funds, your lender will know the loan products that allow for use of those funds. If you are only planning to stay in this home for 5 to 7 years, a 5/1 or 7/1 year arm may be the better loan product for you, as the rates are typically more competitive than a 30-year fixed rate. If your credit is bruised, your lender will know to look for loan products that will provide the necessary leniency, like an FHA loan.
If you work with a Mortgage Broker (like me) versus a loan officer with a traditional bank, chances are your Broker will provide you with more loan options because Brokers have a multitude of lender relationships with whom to shop your loan. Also, a Mortgage Broker will more than likely have the ability to process, underwrite, and close your loan faster than a traditional bank since they specialize in the mortgage process and have better platforms in place to do so. Many larger lenders and banks take longer to underwrite mortgages since this is simply one of several services they provide.
Once you and your lender have agreed on the right product for you, an experienced and reputable lender will disclose the following before locking you into your loan:
- The Origination Fees the lender will charge you to process your loan. These fees vary from lender to lender and you should be fully aware, upfront, of what these will be so you have the opportunity to compare to other lenders.
- Settlement fees, title fees, and recording fees should remain consistent but may vary by a small percentage as these are third party, fees associated with all mortgage financing.
- Finally, your lender should be able to give you a very good estimate of the amount of money you will need to have available to deposit into your escrow account, for both your taxes and insurance. The exact amount will not be known until your closing date has been determined.
The mortgage industry is a highly regulated industry and therefore a complicated process. Again, before locking in, your lender should thoroughly explain the role you will play in the process and the importance of it. Your lender will tell you that what documentation he/she will need to receive and will explain when and how those documents need to be provided. It is imperative that you follow your lenders direction, provide all information requested, and do so in the timeframe they have communicated, as incomplete files or missed deadlines can literally kill your deal. The process can feel stressful and overwhelming. An experienced and reputable lender will be there to walk you through every step of the process, keep you informed, and therefore alleviate much of the anxiety you could potentially be experiencing. Bottom-line, it is your lender’s responsibility to provide you the support and service you deserve throughout – this is your loan!
Had my husband and I realized that ALL LENDERS ARE NOT THE SAME when we first began looking for our first home, that “dream house” with which we fell in love might have become more than just an unattainable dream!
To contact Tracy Kearney of Guaranteed Rate with any questions or lending needs, email her at: firstname.lastname@example.org.