Finding and shopping your loan. The loan process and the different types of loans available are very complex. Loan officers and lenders rely on the complexity to confuse and misdirect the borrower in order to get them to surrender and sign on the doted line. Remember credit rules have changed and the three different credit reporting agencies are not supposed to penalize the applicant for applications filed in a thirty day period. This allows you to shop your loan, so don’t listen to the spin that you need to sign today. Shop your loan and get the best deal possible. Stay on the realty trak. I am going to simplify the loan process to a few definitions and processes that will allow you to get the best loan possible. Truths are simple and whenever you make them complex you have some ones special interest at heart. Don’t be a victim of special interest.
Let us break down the types of lenders and list their types of loans, advantages, and disadvantages. Some will disagree with me but I break it down to three types of lenders.
Direct Lenders, Mortgage brokers, and Lenders that do both.
- Direct Lenders- Banks, Credit Unions, Specialty Loan Programs, and Large Corporations are some examples. The advantages of these are a relatively short approval time. Their loans, fees, points, and other charges are very structured so they can give a closing estimate that will be accurate. (PS- Don’t forget to make them give you this it’s called a Good Faith Estimate.) They should be able to give you full loan approval in one day. Many of them are offering No Closing cost loans that they will pay all of your closing, except for taxes related to the sale. This can save you a lot of out of pocket expenses at closing. If you are in the high 600s or above, on your credit score, this is probably the best type of lender for you. But remember, shop the loan out. Specialty Loan programs are out there for low income and first time home buyers. They often offer low interest loans with some paid closing but require the applicant to attend classes. Some Direct Lender disadvantages are that their loan process is very structured. If you don’t fit their guidelines they will turn you down and this is bad for your credit report. Although many are starting to be competitive I have found most tend to have higher interest rates. And everything is done on their time so don’t be surprised to see your settlement pushed back a few days. You need a great deal of patience to deal with Specialty Loan programs for they often take a lot longer to qualify and settle your new home for sale.
- Mortgage Brokers- Are small, large companies, and individuals. Some service the loan, but most do not. The advantages are they shop your loan to multiple companies. so it is possible they can compete over the rates and points. Some can specialize in certain types of loans (such as FHA, VA, Construction loans Etc. We will define these later) and offer the most competitive and competent services for these type of loans. Many are willing to work with individuals bordering qualification, writing letters and such to improve your credit in order to qualify. The disadvantages are many, and the borrower should be aware of the process all the time. Many loan officers shop your loan to the companies that give them the highest fees to your detriment, so you need to ask for a Good Faith estimate from at least four different lenders that they are working with. If they don’t want to do this, walk away. Many are very busy and don’t submit all of the paperwork until the last minute, this can affect closing costs and increase you’re out of pocket expenses at the last minute. This is why I recommend you shop the loan, you can threaten to abandon them and go back to one of their competitors if they don’t make it right.
- Lenders that Do Both- Banks, Credit Unions, Mortgage Brokers, and Corporation are examples. Notice that many of the examples from above do both. You need to ask whether this is the case for if a Bank is shopping your loan to another company, you can often go directly to that company and get better terms. These types of lenders have both advantages and disadvantages from both categories but can be an excellent source for shopping your loan.
Now that we have seen the type of lenders lets compare a few types of loans. There are many types of loans and programs and no one individual can keep up with all that is available. I could write a book on everything available only to have it become obsolete because market conditions, government regulations, and or our favorite the Federal Reserve Bank has screwed up again. So I will concentrate on a few basic types of loans that are consistent and most loan types are subs of these types of loans. These are Conventional, FHA, and VA. Here are some of the advantages and Disadvantages.
- Conventional loan are often more competitive through direct lenders. This type of loan is often better if your credit rating is in the high 600s or above. Higher credit scores can get many benefits from this loan. If you are planning on living in this property for a long time you can buy down the interest rate with points. Often many loan modifications are available. Many lenders that do this type of loan are offering all Closing costs paid even if you use your own settlement company or attorney. There are many types of this loan.
- FHA loans are often more competitive through brokers. They are excellent loans for first time home buyers with low income, and or borderline credit rating. FHA 203k loans allow lower income individuals qualify for fixer upper homes financing the repair costs in the loan. FHA loans often let the buyer finance some closing costs allowing the purchaser to get in the home with only a small amount down. FHA loans have a cap for different areas often coming under the average price for higher dollar areas.
- VA loans are for qualifying Veterans and offer many advantages brokers who specialize in this type of loan are more competitive. This loan has many options and is hard to compete against if you are a veteran. But always remember shop the loan.
We can now, armed with the above information, list out a few factors and figure out the best loan that fits our needs.
- How much you qualify for. There are many mortgage and income calculators on the internet that you can figure out how much you qualify for. A lot of lenders take application on the telephone or internet and can tell you what you qualify for before they take your application. This is easier if you did the first step and got your credit score online. New Home buyers First Step in Purchasing a Home They can tell you the limits for FHA or VA loans in the areas that you are interested in. If you qualify for more than the limits and plan to spend more you know you will have to go with a conventional mortgage, and a direct lender will probably have the best choices for your needs. You can always buy at a lower price it all depends in your lifestyle and how your home fits into it.
- Your Credit score and Income. If your credit score is 640 to 680 and or your household income is lower than 80k per year then you probably want to go FHA, or find a Conventional Specialty Loan Program.
- If you are Veteran and have good credit VA is probably the best for you. If your credit is lower such as in B. then maybe you want an FHA loan.
Remember Shop Your Loan. The guides above are nothing more than a common sense approach to getting a loan. Be Creative. Ask Questions and Expect Answers. The market and the loan products in it are forever changing, by shopping the loan you should be able to find the best product that fits your needs. You want find Houses Homes, Houses Apartments Lands, and or Real Estate that fits your lifestyle. Be firm and You and your Realtor should be able to check up on the lender to make sure they are giving you the product that you applied for. Always get a Good Faith Estimate for they love to forget this. I know you can do this if I can.
John Norton Realtor
Realty Executives of DC
Washington DC Real Estate
Maryland Real Estate
Virginia Real Estate