Here's the inside scoop on how to do it right!
When you choose your lender, it's important to remember you are actually making three decisions:
· Which person do I want to advise me and coordinate the financing process?
· Which company do I want to do business with in the years to come?
· Which loan program is the best deal for me?
As evidenced by numerous mortgage financing horror stories, one of the most important decisions is choosing the professional you want as your advisor, consultant and coordinator of the financing process. This is most likely the largest financial transaction of your life and it is far too important to place into the hands of someone who is not capable of advising you properly, as well as troubleshooting any issues that may arise along the way. But how can you tell?
five simple questions a professional lender should have the ability to answer without hesitation. If they do not know the answers... run... don't walk, to a lender that does!
The only correct answer is Mortgage Backed Securities or Mortgage Bonds, NOT the 10-year Treasury Note. While the 10-year Treasury Note sometimes trends in the same direction as Mortgage Bonds, it is not unusual to see them move in completely opposite directions. Do not work with a lender who has their eyes on the wrong indicators.
A professional lender will have this at their fingertips. Each week various economic reports are scheduled for release. Locking before or after these reports could make a significant difference in your interest rate.
If a lender cannot explain how Mortgage Bonds and interest rates are moving at the present time, as well the near term trend, you are talking with someone who is still reading last week's newspaper and probably not a professional with whom to entrust your home mortgage financing.
When Dr. Bernanke and the Fed "change rates", what does this mean... and what impact does this have on mortgage interest rates?
The answer may surprise you. When the Fed makes a move, they are changing a rate called the "Fed Funds Rate". This is a very short-term rate that affects equity lines, credit cards, credit lines, auto loans and the like. Long term mortgage rates most often will actually move in the opposite direction as the Fed change, due to the dynamics within the financial markets. For more information and explanation, just give us a call.
Fewer than 5% of mortgage originators ever earn professional designations such as CMPS® or CMB®. These designations require extensive coursework and passing a qualifying exam before they are granted. Would you let a surgeon who wasn't board-certified operate on you?
Now you've found a solid loan officer who is professional, competent, and, ideally, certified. As with any professional, the infrastructure that supports him or her is an important factor. Here's what you want to ask.
With the new Home Value Code of Conduct rules, mortgage brokers cannot order appraisals and lenders have to ensure appraisals are ordered by someone with no direct financial stake in the loan approval process. If your lender has an in-house appraisal ordering department, then your appraisal will likely be conducted by an experienced local appraiser. If your lending source uses an outside appraisal management company, it is possible that an inexperienced appraiser who does not know the area may be assigned to your appraisal, which could cause problems in getting your loan approved. Many large national banks use appraisal management companies.
Are you a broker or a lender?
Lenders are employees of the mortgage companies, brokers act as a middle man between a lender and you. Working directly with a lender is especially important, because the companies that fund loans for brokers are ending their operations or going out of business and leaving borrowers stranded. Also, brokers are at the mercy of the lender's appraisal ordering process. A direct lender often has more flexibility than a broker and can keep a higher level of control over the process because it all happens within the same company. Also, if a middle man is involved, you can expect additional fees. These fees are known as "junk fees" in the lending industry.
Does your company process and underwrite the loans in your office?
If the loan processing is handled "in-house" the service will be more consistent. If a loan officer works with the same team of processor, underwriter, and closer, they will build a rapport together. This could be very helpful when dealing with unique circumstances specific to your financing.
Will my loan be sold to another company?
You may wish to work with a company that will keep the servicing for your loan. However, all lenders retain the right to transfer the servicing, so there is no guarantee that any lender will keep servicing unless your loan is held in portfolio. Your loan officer should tell you what is likely to happen with your loan. Loans through a broker will always be serviced by another company.
Though the lowest rate may seem important, most people don't know how to get the lowest overall cost over the estimated time they own the property. In most cases, mortgage companies raise capital from bond market investors to fund your mortgage, so the cost to borrow money is the same from lender to lender. Yes, you will hear and see things about no closing costs, free appraisals, and the lowest rates in town, but these are all gimmicks. Do we make money for our services? Of course, but we also work hard to earn it.
So, what questions do I ask to make sure I am getting a good value?
· What are the lender specific closing costs?
· If rates drop, can I renegotiate a lower rate?
· Is there a prepayment penalty?
· If the loan is an adjustable rate mortgage, how long is the rate fixed, and what happens when it adjusts?
· How will you save me money in the future?
Be Smart....Ask Questions....Get Answers!
Mortgage financing can be complicated and confusing. Unfortunately, there are people in the industry who will use the complexity to their advantage and at your expense. More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life... but we do this every single day. It's your home and your future. It's our profession and our passion. We're ready to work for your best interest.