Ready to buy a home? As you shop for a home you are determining whether or not a property will meet your needs and making sure that you’re not paying too much for it. You should shop for a lender in the same way. Consumers want a good price AND good customer service. Regarding the price, that is easier to evaluate. Each lender will be able to give you an estimate of their costs for the loan. The customer service aspect might be more difficult to assess so ask your local real estate agent for referrals. I don’t/can’t take kickbacks from lenders so if I refer you to one it’s because I know they’ll get the job done in your best interest.
Let’s look at how to evaluate the cost of the loan. First, it is recommended that you get the opinion of three lenders to see how they stack up. With each prospective lender, get an itemized summary of their charges. Lenders will need some basic information such as your credit score income statements and any debt you may have incurred. By law, within 3 days they will give you basic information on the cost of the loan such as lender’s fees and an estimation of your monthly payments, also known as a Loan Disclosure (formerly HUD-1).
Once you get a summary of the lender’s costs for the loan you wish to apply for, compare them side-by-side. Here’s what to look for:
- Interest Rate – There are various factors that impact your rate (i.e. your credit score, type of loan, loan discount points, etc.) but some lenders have a higher interest rate than others for the same loan product.
- Loan Origination Fees – some lenders will charge a flat fee or none at all. Some will charge a percentage of the loan amount, typically one percent (this is where your loan gets expensive).
Example: On a recent transaction, one lender charged 1% for loan origination on the same loan while another charged a flat fee of $1200. For a $400,000 loan you will be paying $4000 vs. $1200 for the same product.
- Underwriting Fees – This is the cost for the underwriter services for your loan. Compare to see which one is higher.
- Additional Fees – Some fees you’ll see have miniscule differences but when added up, can make one lender look more attractive than another (i.e. Tax Service, Credit Report, Appraisal Fee, Flood Certification).
In addition to cost, the level of service provided by a lender is very important. This can make or break a transaction. Some questions to ask:
- What is the lender’s availability? Do they return calls/emails to you and your real estate agent in a timely fashion? Do they work weekends and nights if need be? This is crucial if you have important questions, especially those of a time-sensitive nature.
- Will you be working with an individual throughout the transaction or a team? Sometimes a personal touch can make all the difference. In any case, you’ll want someone that knows you, what your needs are and where you are at in the transaction. This is especially important with regard to getting the appraisal done on time.
- What kind of loans do they provide? Some lenders tend to provide a limited number of loans as they provide service in multiple states. Local lenders will provide basic loans (Conventional, FHA, VA) but also state specific products that will benefit you (i.e. down payment grant assistance programs).
- What happens if the lender makes a mistake? Will they correct the issue and compensate you? It happens, we all make mistakes. A good customer service provider will fix it with the least amount of burden to you.
Once you’ve narrowed your prospects down to one lender, it’s wise to shop their offer around to the other lenders. They can evaluate whether or not they can meet or beat the other lender(s). Once you’re satisfied you have chosen the right lender, have them pre-approve you for a loan and then you are ready to go shopping for a home and start making offers!
About the author: Sean Gilliam is a Realtor® with RE/MAX Alliance in Northern Colorado and is a Certified New Home Specialist™. Sean can be reached at seangilliam@remax.net or by phone at 970-313-6706. For additional articles see Sean’s blog or to search for properties see his web page.
Interested in buying a home or selling your current home? I am committed to your success. Give me a call at 970-313-6706 to get started.
