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We are a young couple looking to buy our first home. Our credit at last check was between good and very good, with the only negatives being low average age of accounts and low diversity of credit. We have researched different types of loan, and are leaning toward a 5/1 or 7/1 ARM. We plan to put 20% down and probably cannot comfortably afford a 15-year fixed rate but we can definitely pay ahead of a 30-year amortization schedule.
The biggest thing we don't know and want to learn more about before we get pre-qualified is how to go about choosing a lender. Our checking/savings is with a Big Four bank and we have some retirement savings with ING. We don't particularly love our Big Four bank, but we have been moving around a lot and it's accessible everywhere with good online account services. These two banks represent pretty much the extent of what we're familiar with.
What do we need to know in order to choose a mortgage lender? Are there exceptional deals out there to hunt for, and if so, where do we look? Is there a way to know how easy or difficult a lender might be to deal with in an adverse situation? What kinds of questions do we need to ask when getting pre-qualified in order to be fully educated about the lender and the process, and should we try to get pre-qualified by more than one lender?
We know it's a lot of questions, but hey, there's a lot to know! Opinions or advice appreciated, and we are aware that some of the folks out there may be prohibited from recommending or criticizing specific lenders; we'll do the grunt work if you can provide us with some "best practices" tips and hints!
I would start with asking your friends for a referral for who they used, assuming they got great service, low rate and sound advice. If you cannot get a referral, i would contact a mortgage broker in your area and also call at least 1 bank to compare offers.
Typically, you will get the best service, rate and advice from a brokers.
If you have the ability to join a credit union, I would recommend doing that. You can usually join if you are an employee of that credit union's core customers, or a spouse/family member of someone already a member. For example, my credit union is a state employees union. They never sell their mortgages to other companies, you can go in any local branch or website and get help quickly. They offer special mortgages for first times and good rates.
There is no advantage to getting pre-qualified by more than one lender. In fact I would recommend against any details about your finances to any lender until after you have "interviewed" several. I agree that you should ideally get a referral from a trusted and knowledgable friend / relative / business associate. Along with the referral you should interview a local bank, a local credit union, other mortgage brokers and maybe even a "mega bank". The things you should be looking for are HONESTY, responsiveness, professionalism. There is NOT going to be much difference in the rates that honest lenders will have, not will honest lenders give away some fantastic deal. Dishonest lenders will OVER PROMISE, suck you in with terms that cannot deliver and ultimately cost you more money with junk fees and an inflated rate.
Given the historically low rates I would strongly recommend a 30 year fixed loan. Even though a 5/1 or 7/1 might allow you to have a lower initial payment, depending on your ultimate timeline and the difficulty in predicting how your life and the overall economy might change the risk that rates may be much less affordable in the future is not something I would recommend to any home buyer.
If you have the ability to join a credit union, I would recommend doing that. You can usually join if you are an employee of that credit union's core customers, or a spouse/family member of someone already a member. For example, my credit union is a state employees union. They never sell their mortgages to other companies, you can go in any local branch or website and get help quickly. They offer special mortgages for first times and good rates.
This is good advice, although make sure the credit union does write mortgages as I am in a couple that do not. CU's and smaller local banks have actual live human beings who can LISTEN to you and make reasonable exceptions to "the rules." I would absolutely run away from your so-called "Big Four" bank when it comes to mortgages. (I wouldn't do ANY business with them, but that's just me).
I assume at some point you will be working with a realtor. They have excellent knowledge of the local lending scene and should be able to refer you somewhere that will work with your particular situation.
I once had a mortgage with a Big Four and they sold it to some company I had never heard of - that had no branches my town and it took forever to get a live person on the phone from the other side of the country. I love having my current mortgage in my credit union. A live person always answers the phone and you can walk into any branch and they can see me almost immediately about any concerns or needs I have. I just got a second home loan (for investment property) through them a few months ago.
Thanks for all the advice! We'll look into credit unions and brokers. Would a broker be less interested in working with us if we're buying a home out of the area? We currently live about four hours from the area where we intend to buy (and to which we are relocating by the end of the summer, depending on how quickly one of us can find work).
Mortgage lenders and brokers are gnerally by state and as long as you are buying in the state there are lode seed to work they will have no problems. Email and fax make it easy enough to get foams filled out anywhere and the final package is often handled by FedEx or courier
I recommend you also look at small regional banks. I work for one and I am available 24/7 - let's face it, real estate transactions are not written during 9 to 5 hours. In fact, I'm willing to bet about 80% are written on the weekends or after 5 PM. I not only have the ability to broker, but we have agreements with the big box banks. It's not unusual for us to have their money for less than what their own loan officers are quoting. (We are what you call correspondent lenders......meaning we close in our own name, but we sell the loans after closing). Brokering is when you don't use your own money, underwriting or closers. When you broker a loan, you package the loan and submit it to the investor (usually a bank). They underwrite the loan and give the broker the approval conditions. The conditions are gathered and submitted so it the investor can close the loan.
Have you selected a real estate agent? If so, it does make sense to consider their recommendations. Everyone has this misconception that there are kickbacks going on (they're not, kickbacks are jailbait). But, the Realtor usually carries a big stick w/ that loan officer and/or lender. If you get a lender that doesn't normally do business in the area that you buy, when the Realtor (or their broker) calls the lender to discuss a file in trouble, any threat stating no more business from their real estate office finds it's way to that lender will be met with an "oh, well, who really cares?" But if it's a loan officer that is in that real estate office daily, known by most agents and they are getting business out of that office, you better believe that file will be well taken care of.
Having worked for one of the big boxes for almost two years, I can tell you their loan origination model........it's for the loan officer to take the loan and pass it off to the back office to get it to closing and move on. Don't be looking for any bonding after the loan applicaiton. And, if your Realtor or broker tells the big box to get it right or they won't be welcome in their office, the reply will be, we don't go into your office because we don't need to........
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