Last week, I talked about how to hire a realtor. This week, I thought I’d review the basics of hiring a lender.
A lender’s job is to find a loan with the best rate available for you. With the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, banks now have very little flexibility, so most lenders will quote you similar if not identical rates for the loans you qualify for.
If you’re not shopping for a lender based on rates, what are you shopping for? The quick answer is: someone you can work with.
From earlier columns, you may remember that loans vary. The loans available to you will depend on your income, credit history, employment, marital status, other property holdings, cash available, and other factors. The loan you need will also depend on whether you want a 15- or 30-year term, a variable or fixed rate, the type of property (i.e., land, residential or commercial), your plans for the money (e.g., construction loan), and more.
The lowest rates available are typically for someone buying an owner-occupied residential property who has excellent credit, a secure job, and enough cash for a 25 percent down payment.
So, how do you identify a good lender to help you find the loan you need at the best possible terms? First, ask your realtor. He or she is likely to be the most knowledgeable person you can find when it comes to people who understand your real estate needs as well as which lenders would be a good fit. You can also ask friends and neighbors, your insurance agent, your accountant and your attorney.
Conventional lenders include banks, savings and loans, credit unions, and mortgage brokers. Occasionally, borrowers work with hard money (private) lenders or sellers willing to carry a note (act as a lender). When I say “lender,” I’m talking about conventional lenders here.
Lenders are paid a percentage of the loan amount by the borrower or lending institution (or sometimes the seller). Because the industry is so competitive, there is little difference in costs. The best way to compare loans is get the terms as close as possible, then compare annual percentage rates (APRs). The APR is calculated after considering the prepaid finance charges (loan fee, lender charges, and escrow fee). APR is not something the average Joe (or even really bright Joe) can usually calculate. Your lender can and will calculate this for you.
Getting back to that original question, if you’re not choosing a lender based on rates, what are the criteria? Here’s a list of questions I recommend pondering.
- 1. How much work will they take off of you? Buying a home is stressful enough without a lender who expects you to do a bunch of legwork. They can facilitate your efforts.
- 2. Are they good communicators? Can they work well with you and your realtor? Even if you don’t have a finance background, you should feel confident that you understand what’s going on with your transaction.
- Do they tell you in advance all you need for the transaction or is there one more condition to meet each week? Clearly, in almost all transactions, unforeseen issues will arise; the need for additional information is not unusual. But a good lender will plan ahead and keep these issues to a minimum.
- Is your lender local? A local lender needs repeated referrals to be successful. This works in your favor. Internet lenders from Timbuktu who have never been to or heard of Ukiah don’t care if they ever get another loan from Ukiah. This does not work in your favor.
At Realty World Selzer Realty, and I expect at other real estate offices around town, we have a DO NOT USE list for difficult, incompetent, or unscrupulous vendors. Lenders can end up on that list. That’s why I say, the best person to ask about which lender to use is your realtor. realtors work with lenders all the time and know who they trust to do a good job.
Next time I’ll write about water. Yes, water. In addition to keeping us alive, it can also be a lifesaver for real estate. If there’s something you would like me to write about or if you have questions about real estate or property management, feel free to contact me at firstname.lastname@example.org or visit our website at www.realtyworldselzer.com. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.