FINDING A LENDER
Unless you are paying cash, as discussed in the previous section, pre-qualification/pre-approval, you will need to get a prequal letter before you start to look for homes. Any lender will be able to provide this for you. The question is, “How do you select a lender?” There are differences. Since a home mortgage is one of the largest loans you will ever take, it is important you understand the differences and select a lender that is a good fit for you. There are basically two ways you can go: work directly with the bank, credit union of lending institution, or you can work with a mortgage broker.
Bank Loan Officers vs Mortgage Brokers
Bank Loan officers are employees of a specific lending institution. They typically have a wide variety of loans they can offer, but they all originate from one specific lender – their employer. Their job is to sell and process loans and can take you from start to finish of the of the mortgage process.
A Mortgage broker is a freelance agent. Unlike a Bank Loan Officer who can only get you a loan that originates from their employer, a Mortgage Broker will sometimes be working with hundreds of lenders as an independent agent. Their job is that of a ‘Match Maker’. While a one lending institution may have criteria which prohibits you from getting a loan, another may be willing to work with you. A mortgage brokers job is to find the right lender. A good mortgage broker can find a lender for just about any type of credit. Once they secure a lender, they will work with you through the mortgage process to closing.
So who should I use?
The answer will depend upon your personal situation and specific circumstances. Mortgage brokers may be able to secure a loan for you even if you have been rejected by your bank. If you have bad credit, want financing for unique or commercial properties, a bank may not be able to help you as they have limited types of loans which they can offer. A mortgage broker, on the other hand, has access to many lenders and many types of loans. Brokers are, therefore, in a much better position to find a lender with whom you can work.
If you have a long and positive relationship with your bank or credit union, however, you might feel more comfortable working with them. They may offer special terms to customers, but more importantly, the security you feel working with a known lender may be, as they say, ‘priceless.’
No matter who you decide to use, working local is a good idea. Nothing can replace a face-to-face relationship. It personalizes the process and if you run into problems along the way, this will become very important. Having an office you can go to and a person who will look you in the eyes, can expedite the process and relieve potential stress. There is little more frustrating to a home buyer than to leave endless messages and send unanswered emails to their lender when trying to close on a home. For those who do not like electronic communication and signing forms digitally, the ability to do this work in person becomes critical and alleviates having to overnight documents. Additionally, sellers particularly like when buyers are using local lenders. They know the process will go smoother and quicker. I have seen sellers accept one offer over another, even when the offer was lower, if the buyer was using a local lender. Some would rather take a little less money in exchange for the confidence believing that using local lender will make the process go smoother and quicker.
The question you may be asking is why would it be smoother and faster? As already mentioned, the transfer of documents when dealing locally is much quicker as it eliminates the trouble, time and expense of overnight mail and getting documents notarized. More importantly, out of town lenders do not understand how things are done locally. They aren’t familiar with certain heating systems used in specific areas, private wells and septic systems, zoning codes, private roads, community regulations and so on. They don’t always understand common classifications and terms used by local appraisers or zoning officers. All of these things can slow down the process and can be the root of much frustration for both sides of the transaction.
Finally remember, don’t be discouraged, it is a process. Even if you are refused by one lender, shop around as another lender may be more than willing to work with you. Like most products being sold, it is a competitive market, and your business is important. See who can offer you the best rates and terms and ask me, other realtors and friends who they have used. A personal recommendation can be your best is always a good place to start.