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By, Tali Wee of Zillow
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Buying a Home? Tips to Find the Best Lender
Home buyers who are ready to begin their house hunt should start by selecting a lender. Real estate agents facilitate the process of finding and purchasing homes, but they’ll expect buyers to be pre-approved by a lender to ensure they’re serious about buying. Home buyers should take their time selecting the right lender for their circumstances in order to save as much money as possible on their final purchase. A bit of research prior to selecting a lender will assist the buyer in making the best choice.
1. Consider Ideal Loan Programs
When potential homeowners are planning to take out loans, they should evaluate which loan programs will best fit their financial positions. The most common loan programs are conventional and Federal Housing Administration (FHA) loans. Veterans can also select Veteran Affairs (VA) loans that allow the purchase of homes within the maximum loan amount and with zero down payment. Buyers should also compare fixed-rate and adjustable-rate mortgages (ARM). Fixed rates solidify the monthly mortgage payment while ARMs generally have lower interest rates at the beginning of the mortgage, with more opportunity for larger loan amounts and less expensive initial mortgage payments. Once buyers narrow down their optimal loan programs, they can begin looking for lenders who handle those specific loans.
2. Know Standard Rates
Buyers should review current interest rates prior to selecting a lender. Different lenders will quote different rates, but buyers will only spot a good rate if they know the standard. The interest rate dictates how much money it will cost the buyer to borrow money to buy a home. The lower the interest rate, the less the overall costs. Zillow has a mortgage tool to calculate the mortgage payment breakdown for mortgages with changeable terms and rates.
3. Understand Lender Types & Fees
Lenders vary on how they acquire clients and how loans are handled after they’re funded. Retail lenders reach out to current customers, like a loan officer who originates loans for the bank. Wholesale lenders fund mortgages acquired by outside lenders. Mortgage bankers fund and sell mortgages on the secondary market, while portfolio lenders fund and hold onto their mortgages. Mortgage brokers are not lenders, but they pair borrowers with lenders who will give them the best rates. These brokers are often paid by the lender and sometimes the borrower, too. Buyers should familiarize themselves with the different types of lenders and the corresponding fees charged to acquire a client and process, underwrite and originate loans.
4. Research State Requirements for Lender Licensing
Each state has its own licensing requirements for loan originators. Before hiring a lender, borrowers should check their state’s websites to see whether lenders need to be licensed. If so, review the list of licensed brokers in the state to locate a lender.
Once potential borrowers have an understanding of loan programs, rates, lenders, fees and their states’ licensing requirements they’re able to start searching for quality lenders. The most common resources to locate lenders are at banks, through mortgage brokers and online in mortgage marketplaces. Some buyers have banks with retail lenders who can originate loans for the bank. Again, mortgage brokers will match a borrower to the lender with the best rate. These brokers charge a fee, and once a match is made, the broker’s job is done.
Zillow Mortgage Marketplace provides a free forum for borrowers to submit anonymous mortgage requests to lenders who respond privately with rate quotes. Regardless of the medium, borrowers should keep a few qualifiers in mind when searching for their ideal lender.
Tips to Select the Best Lender
1. Find the lowest Rate Possible
Lower rates equate to a cheaper total price. A minor difference in interest rates can be the difference of thousands of dollars in total cost. Borrowers who have done their homework should have a good understanding of current rates to identify when they are being quoted a good deal by a potential lender.
2. Be Certain the Lender Handles the Ideal Loan Program
Home buyers should narrow down which loan programs they are interested in prior to locating a lender. When selecting a lender, borrowers need to make sure their ideal loan type is handled by a prospective lender. If a borrower is considering a VA or FHA loan, and the best interest rate is offered by a lender who doesn’t fund VA loans, it may not be a good fit because the lender won’t suit all of the borrower’s needs. It is acceptable to get pre-approval from more than one lender prior to house hunting. This gives buyers more options as they narrow in on potential homes.
3. Check Out the Lenders Reputation
Lastly, home buyers should select their lenders based on professional reputation. Carefully read through reviews from former clients to deduce the true efficiency of the lender. Ask friends or family member for referrals of great lenders who they’ve worked with in the past. The most important things to look for in reviews and referrals are lenders who are timely and trustworthy. Did the lender lock the rate as promised? Did the lender facilitate an organized closing process on schedule? Did the closing costs fairly reflect the original good faith estimate? When lenders’ reputations are flawless, their rates are low and they fund the loan programs the buyer hopes to use, then it’s a great fit.
In conclusion, when real estate buyers know which type of loan program they are looking for and understand the current market rates and requirements, then they are prepared to search for a lender. To select a quality lender, buyers should do their homework in order to effectively identify professionals with suitable services and competitive rates. When a buyer is comfortable with their lender, they can rely on having a seamless closing on their future home.
What are your recommendations for finding a lender and reducing overall borrowing costs?
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