Now take the list of mortgage providers and compare the considerations for the best service and who you felt the most comfortable with.
There was a time that seems like decades ago when people with less than pristine credit were not able to get home loans. At that time people with bad credit were all but assured that their dreams of homeownership would never come to fruition. Luckily, for many people, those days are long gone.
Homeownership is possible for people with bad credit and no credit history at all thanks in large part to a multitude of loan packages made available by countless lenders. Good people with bad credit can now get approved for mortgages and despite what you may have heard from a well intended but misinformed friend or family members, these loans can be at very competitive rates.
The best approach is probably to ask a few questions and see how your loan candidate stacks up.
"Remember, Nobody's doing loans for free out there and most banks have a minimum 1% origination." "If you're not paying the 1% origination as a closing cost, rest assured, it's hidden in a higher interest rate."
It is noted brokers go a step further when they market "no cost loans." Every loan has costs and fees, for things such as a credit report, appraisal and notary, that if not itemized in the closing costs are hidden in a higher interest rate. A loan can get marked up so high so as to result in 2 percent or even 3 percent rebate after the loan closes, "so don't get fooled ... it's just a marketing gimmick."
"We've all heard about these 1% mortgages." "They're heavily marketed and most of the promotional material is highly deceptive. I personally believe that less than 10% of the people who get into these types of loans truly understand what they're getting into."
While option ARMs can provide value, they are "a bit scary" and the "least conservative" of loan programs because they have the potential to erode borrowers' equity and potential profit, as one of the options to pay a minimum payment based on an artificial starting interest rate of just 1% is not even enough to pay the interest only payment and makes the mortgage balance get higher each month.
Another marketing technique is the suggestion that the option-ARM is a 30-year fixed, when in fact it is variable from the very first month.
"There's a big difference between a 30-yr 'amortized' and a 30-yr 'fixed' ... you'll see your 30-year amortized payment change every single month, probably higher."
It is also said that "a lot of people" don't realize they have prepayment penalties on their loan because "mortgage brokers ... avoid the topic as much as possible." In fact the cost of the penalty might outweigh the benefit of refinancing, though most brokers would never suggest the borrower wait to refinance until the penalty expires. "Most would only stress the risks of keeping the existing mortgage and push you to begin the refinance as soon as possible."
What Is The APR For This Loan?
Most veteran lenders have been asked this question so many times they've got an accurate response which literally rolls off their tongue. If your loan officer stammers or, worse, tries to tell you that the "annual percentage rate" or APR is meaningless, go elsewhere. APRs can be figured with a financial calculator or a computer. Either way, a good loan officer will explain the APR and provide you with the correct number.
What Is The "Par" Price For This Loan?
The "par" price for a loan is the interest rate without points, say 7 percent and 0 points. You can often get a lower rate by paying points or you might prefer a higher rate but lower closing costs. The idea is to see which option makes the most sense for you.
What Are My Closing Costs?
Good loan officers have closing costs memorized. Title insurance rates are typically provided to loan companies for a quick quote. If your loan officer gives you broad ranges of costs such as "Oh, your costs will be between $1,500 to $2,500" then I'd dial a few more lenders. You can bet your costs will be on the upper end of the food chain.
What About Fees?
Be wary of claims by loan officers that "I might be able to get that waived for you" when examining fees. Lenders or brokers have some control over their own fees, but if you get promises of reduced fees for non-lender services get it in writing. Remember, also, that HUD feels consumers should pay no more than actual costs for services such as appraisals and couriers.
How Long Have You Been In The Business?
Unlike real estate brokerage, where both brokers and salespeople are licensed and must pass state-mandated classes and tests, the situation is different with loan officers. Requirements for loans officers vary extensively. Most states, according to CampusMBA.com, have no requirements to enter or stay in the field.
If licensing is not a sure measure, how do you know if the loan officer you're dealing with is up-to-date and knows pretty much everything that needs to be known about the mortgage process?
We usually assume that experience counts, so why not ask how long the loan officer has been around?
Another approach works like this: Speak with those who have recently financed or refinanced and with local real estate brokers.
Those who have just been in the market for a loan can tell you what they liked or didn't like. As to real estate professionals, they continually work with lenders and know who delivers promised rates and packages -- and who doesn't.
Check state regulatory agencies to see if the lender has been the subject of disciplinary actions. And, of course, ask if the Better Business Bureau has experience with the lender, either pro or con. The issue here is not whether someone was the subject of a complaint, but how the complaint was handled and whether the number of complaints is reasonable relative to the size of the firm -- a big lender might reasonably have more complaints than a smaller one simply because it deals with more people.
Just because someone hasn't been in the business for very long shouldn't automatically disqualify them as a potential loan officer. We all start at some point, don't we? The key to using someone new in the business is not whether they instantly know all the answers to all your questions, but whether they will find the information for you need and deliver promised loans.
Also, going back into an industry when opportunities are good may make a lot of sense. Again, the question for consumers is whether the loan officer can deliver promised mortgages, rates, and terms.
We all want good rates with low fees, goals shared by experienced and reliable loan officers. Locate the right loan officer and you'll likely find that the mortgage process is as easy as falling off a log... instead of being hit by one.
