The ‘HOW TO’ Guide For Lenders

Check out several lenders

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You can qualify for a home loan from several types of lenders known as thrift institutions—mortgage companies, commercial banks, and credit unions. Each lender will have its own terms and pricing, so make sure you shop around and get different quotes.

Another option is to use a mortgage broker. Brokers find financing for you rather than lending money directly. They take a fee for the the service but their access to several lenders can mean you have more flexibility in finding the terms you want. Brokers are not required to find the best deal for you unless you contract them to do so. Make sure you get some competing quotes from brokers as well.

Taking the time to shop around, whether it be with a thrift institution or a mortgage broker, could potentially save you a great deal of money over the long run. Your goal is to find the best terms on a loan that works for your situation. The more educated you are in the loan process, the more likely you will avoid any “oversights” that could leave you stuck in a “bad deal.”

Sometimes it may not be clear if you are working with a lender or a broker. Some financial institutions operate as both. Brokers’ advertisements do not always use the word “broker.” It’s best if you ask  whether a broker is involved as there is possibly that extras fees will be included. Sometimes broker’s compensation will be in the form of “points” that are paid at closing cost or added to your interest rate. Make sure you ask the fee structure, if any, of those handling your loan.

Knowing the amount of your proposed monthly mortgage payment and the interest rate is not sufficient to make an educated loan decision. There are many other fees that are apart of the initial loan process as well as your recurring yearly expense. Work with your lender to figure out how much down payment you can afford as well as any “hidden” costs of the loan.

Rates

  • Ask your lender for a list of the current mortgage interest rates and if  they are the lowest quoted for that day or week
  • Fixed or Adjustable. Find out
  • If your loan quoted is an adjustable-rate loan, ask how your payments will vary and if your rate will go down when rates go down
  • Find out as much as you can about the annual percentage rate (APR). The APR often includes your interest rate and any points, credit charges or lender fees that you may be required to pay.

Points

Points are lender or broker fees linked to an interested rate. Typically, the more points you pay upfront, the lower your rate. Ask for your points to be quoted in a dollar amount instead of “points.”

Fees

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Home loans involve many fees, such as loan origination/under-writing fees, broker fees, transaction fees, settlement fees, and closing costs. Your lender should always be able to give you an estimate of your total fees included. And sometimes, these fees are negotiable. Certain fees are due when you apply for the loan—application and appraisal fees—, and some are paid at closing. “No cost” loans are available, but they usually involve higher rates. Ask for a breakdown of each fee as sometimes fees are lumped together.

Down Payments and PMI

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Most lenders require 20 percent of a home’s purchase price as a down payment. However, many lenders now offer loans for less than 20% down. Sometimes as little as 5% on conventional loans. Lenders typically require private mortgage insurance (PMI) to protect the lender in these “riskier” loans.

  • Find out the lender’s down payment requirements and what is needed for verifying funds for your down payment
  • Ask about any special down payment programs that might be available

If the lender requires PMI:

Find out total cost of insurance will be

Find out how much of your monthly payment will be PMI

Find out how long you will be required to pay PMI and if it will end once you have made a certain number of payments

Get The Best Deal

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After doing some homework and obtaining terms and offers from competing lenders, start the negotiation process. You want to find the best deal possible.

You can go to multiple lenders on the same day and end up with completely different terms. The difference in price will vary with the difference in rules that the lender has for the loan officers and brokers that are allowed to keep any overage as extra compensation. The overage is the difference between what the lowest price the lender can secure the loan at versus that the borrower agrees to pay.

Overages, when they occur, are built into the price that the borrower pays. They occur in fixed and variable-rate loans and come in the form of points, fees, or in the interest rate.

Have your lender write down all the costs associated with the loan. Ask the lender to waive or reduce fees or to reduce your rate.

When you have negotiated favorable terms, it is advisable to get a written lock-in from your lender. The lock-in will include the rate, period the lock-in lasts, and fees or number of pints to be paid. There may be a fee to do a lock-in and it’s possible that it can be refined at closing, so make sure you ask your lender about this. A lock-in can protect you if rates rise during the loan process, but also hurt you if they fall. Try to negotiate a comprise with your lender if rates do fall.

Shop around and Negotiate 

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When buying a home or shopping for a loan, always shop around and negotiate. You can start by comparing rate information of lenders by using your local newspaper or the internet. You can often find information on interest rates, points and terms for multiple lenders.

Tell any potential lenders that you are shopping around. This will incentivize them into wanting to offer you better terms to get your business.

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