What to Look For When Choosing a Home Loan
What to Look For When Shopping for a Loan
Rate isn’t everything when you are shopping for a home loan. Rate is a massive factor, but it isn’t everything. Things that a buyer should consider when shopping for a loan are Rate, Closing Costs, Working with Someone Local (or really in the same time zone) and the Reputation of the lender.
Rate is important. Your interest rate is actually VERY important. An 1/8 of a point can save you thousands of dollars throughout the life of the loan. The interest rate should be a major concern, but sometimes the lower interest rate can because they are charging a point (WHAT IS A POINT CLICK HERE FOR ARTICLE) which effects the closing costs.
Many times, a buyer can be quoted a lower interest rate only to find out their closing costs are higher. These closing costs are higher due to them paying an up-front cost to reduce the rates.
The great news about closing costs is that whatever a bank estimates for closing costs in the GFE (Good Faith Estimate), they must come within 10% of that amount otherwise they are required to eat the cost. In other words, if a lender quotes you $5,000 for total closing costs then anything over $5,500 they are going to have to absorb.
Working with Someone Local
Working with a local mortgage banker is something that should be a large factor for consideration when choosing a bank. And it isn’t necessarily just the mortgage banker, but where the underwriter located as well.
The time zone issue matters a LOT, especially if you are on the East Coast. If your underwriter or loan officer is on the West Coast (which is the case often times with these internet banks), then that means they aren’t getting in the office until noon our time. This can create delays in the process as well as create issues when you need immediate answers.
Here is a great example of a major issue that can be caused by time zones. Imagine your closing was at 10am (often times buyer closings are in the morning) and there is an issue with the closing statement and an attorney needs it to be changed. The bank needs to approve that change That change won’t be happening at the earliest until noon EST.
Another plus in having someone local is that I have seen many times where a client will drop off the hard copies of documents needed because of issues scanning. This is not something that is possible with an internet bank in North Dakota.
Reputation of Lender
Whether it is fair or not, it doesn’t matter. There is a perception that some banks are better than others. I have seen sellers accept one offer over another because of the lender that the buyer is pre-approved with. If representing a seller, I know I will advise against certain banks.
Getting to the closing table is important. And I have seen it many times where the deal will fall apart on the 5-yard line. If that happens it can put a buyer in a precarious position not to mention will have wasted a lot of people’s time and a lot of the buyer’s money. Most likely the buyer will be out at least the home inspection and appraisal costs.
I had one bank that required a buyer to put an additional $20,000 down in order to make the loan happen. This came two days before closing and after the mortgage commitment To say the least, the buyer was very angry and upset and was lucky they were able to pull together the $20,000.
A reputable lender will help make your offer more competitive. Further more an experienced Mortgage Banker could help put your offer over another. Many times, I will ask a banker to reach out to a seller’s agent or tell the seller agent to reach out to the mortgage banker to talk about the buyer’s strength.
Interest rate is not everything.