When purchasing a home, one of the most important parts of the process is finding a great lender. Finding a great lender is not as difficult or daunting of a task as it might seem. In this installment of “Ask the Expert,” I will give you some advice from a Realtor’s perspective and then follow it up with a Q and A from one of my preferred lenders, Evonne Davies from Hallmark Home Mortgage.
As with most steps of the home buying process, the first place to start is with your Realtor. Most Realtors have a list of “preferred lenders” that they have worked with on many transactions. These are usually people who have come through for their clients again and again. My preferred lenders always put our client first and makes us both look like heroes on closing day. When buying a home, you want the smoothest and most stress-free journey from beginning to end, and I will recommend the lenders I know I can count on to make that happen for my client.
Mortgage Lenders vs. Mortgage Brokers
So, first of all, let’s start with answering the question, “What is the difference between a ‘Mortgage Lender’ and a ‘Mortgage Broker’?” Very simply put, a lender is a financial institution that makes a loan directly to you. A broker doesn’t lend you money, but works with many lenders to find the right lender for you. Either option can be a great experience and it really depends on your situation and preference.
Many buyers will start the lender search with their own bank. Years ago, it was common to go to your hometown bank and sit down with your banker and apply for your home loan. There was a relationship, because this was YOUR bank. You knew the staff and felt comfortable with them. Sometimes, this is still the case. There are a lot of great local banks that do wonderful home loans and have amazing customer service. Many of the local banks have the loan originator, processor and underwriter all in the same office. If someone has a question or needs additional documentation, all they have to do is walk down the hall and talk to the person. This greatly reduces the chances of delay or miscommunication.
If you bank at a large national bank, they may offer awesome personal banking features, but home mortgages may not be their forte. One of the problems with the larger institutions is that when it comes to the home loan process, they may have a local ‘loan originator’, a ‘loan processor’ in another city and an ‘underwriter’ in yet another city. This may lead to delays with paperwork and communication breakdowns. These delays can ultimately lead to a delay in your loan, thus a delay in your closing, which then is a delay for your seller’s closing. It’s a domino effect, and it makes for some very stressed buyers and sellers. This is not always the case, but worth keeping in mind.
A Mortgage Broker can offer a wider variety of loans and services. A mortgage broker is your middle man – they act as a liaison between you and the lending institution. While a mortgage banker has one source of mortgage funding, a broker has several funding options and can compare them to find the best choice for you.
You will then work with the broker and your real estate agent to find the best loan package for you. The lender will then determine if you qualify for the loan and what your interest rate and terms will be. A broker can’t make those decisions.
Many mortgage brokers also have a local office that houses your loan originator, processor and underwriter all in one place, which makes the process faster and smoother from start to finish.
How do I decide?
My advice is to ask for recommendations when it comes to choosing a lender or mortgage broker.
- Use your agent as a resource. I have worked with both fantastic and terrible lenders, and I am eager to recommend those who have made the home buying experience fun and stress-free for my clients.
- Ask for recommendations. Ask friends who have recently purchased a home for a recommendation. Most of them will have a lot to say about their lender and whether or not the experience went well.
- Talk to a few lenders. If you contact a loan originator and he/she answers phone calls and emails promptly, takes the time to answer all of your questions to your satisfaction and is both friendly and helpful, they are going to be on top of your loan. Communication is key.
Frequently Asked Questions
I sat down with Evonne Davies from Hallmark Home Mortgage who is one of my awesome preferred lenders to get the answers to a few frequently asked questions.
When is the best time to contact a lender?
You need to contact a lender as soon as you start the home buying process. Your agent cannot put an offer on any home until they have the pre-approval letter from your lender in their hand. Otherwise, you are wasting your time, the agent’s time and a lot of gas money.
What things do I need to know while my loan is in process?
Do NOT pass go and do NOT collect $200
- Do NOT, I repeat DO NOT, apply for new credit or debt, as you will be required to explain and document any new credit inquiries from the time the initial credit report was completed. If you did make a purchase during this time, it could alter your debt to income ratio and you could lose the loan approval.
- Do NOT change jobs! A job change may have a significant effect on the final underwriting decision on your loan
- Keep any funds you are using for down payment or assets in place and in the same account until needed at the loan closing. If you are getting gift funds, these will need a gift letter from the donor and paper trail from their account over to yours. It HAS TO BE documented!
- Do not pay off any debts unless you are advised. If we notice a debt is paid off and it was a large balance loan, we will need to know where the funds came from to pay off the debt and make sure you still have funds for the loan closing. Once again, we need a paper trail.
- Avoid large purchases. A major purchase that required a withdrawal from your verified funds or increases your debt may affect the final underwriting decision.
Does my credit score matter?
Absolutely! The higher the credit score, the better the interest rate on certain products. If you don’t think your credit score is good enough, do not get discouraged. We have several formulas to guide you on what you need to do to get your credit score up high enough to purchase a home.
Please note, Credit Karma is not an accurate credit score. They only base your credit score on revolving charges and not the whole picture. I have had several borrowers who said their score was bad because they had medical collections and Credit Karma gave them low scores. I pulled credit on them and there was no score. YES, we can underwrite loans with NO CREDIT score.
Does my down payment amount matter?
Yes, the more you put down, the better the interest rate and the lower the mortgage payment.
Can I still get a mortgage if I don’t have a down payment?
Yes, depending on your credit score, there are several down payment assistance programs available and special rates through the bond money from the Ohio Housing Finance Agency. USDA, VA and the Doctor Only programs also require a zero down payment. You could buy a home and end up bringing ZERO to the loan closing.
How long does it take to purchase a home?
Usually, the contract is written for 45 days. Depending on the product, we can close loans in 18 business days or less. So, although the contract may be 45 days out, you could potentially close a lot sooner than you think.
Theresa is a real estate agent in Marysville, OH dedicated to helping you find your dream home. You can contact her at email@example.com.