Obtaining a home mortgage is one of the most substantial financial transactions that most families will ever negotiate. The mortgage loan process can take 60-90 days from the signing of a Contract of Sale on a purchase through closing. The loan application and related paperwork can be hopelessly confusing. So, how do you obtain the expertise for the one, two or maybe three times in your life that you’ll buy or refinance your home? Options for finding a mortgage include:
- Calling your local retail bank
- Going on a website like Bankrate.com or www.lendingtree.com
- Asking friends and family for recommendations
- Consulting with a residential mortgage banker
Regardless of your approach, every home buyer needs to know the following before looking for a property: their Income, Basic Assets, Liabilities, your Credit Score, their Property.
Calling your local retail bank
Your local bank may be an excellent source for home financing. This is especially true if you have a personal or long-term relationship with your lender. Your financial picture may be well known to a bank officer. This may enable him/her to pre-qualify you and determine the feasibility of obtaining a loan. And, a letter on bank letterhead may help your sales broker move you up in a bidding war. In addition, if you have a strong relationship, the bank may agree to waive certain fees or closing costs to win your business.
However, when seeking a mortgage, there are definite pitfalls in only consulting one lender. First off, are residential mortgages their mainstay business or just a service to get you in the door to open more lucrative accounts? And, how service oriented are they? Will they assist you in filling out what is best a cumbersome application process? Most important, do they offer an array of products to fit your circumstances? Calling on your local bank may be best for small, uncomplicated mortgage loans where there is a strong personal relationship with the bank.
Web sites such as www.Bankrate.com or www.LendingTree.com
Web sites such as Bankrate or Lending Tree can provide some valuable information when you are seeking a mortgage. However, it may not be a good fit for your individual circumstances. These websites should be considered as a tool or advertisement. The information cannot be 100% trusted.
Friends and Family
Friends and family may offer good advice when you are seeking a mortgage loan. However, specific information may be out-of-date, and therefore cannot be relied upon for accuracy. Family and friends should be relied upon strictly for referrals to lending institutions and other mortgage experts.
Consulting a Residential Mortgage Banker
Residential mortgage bankers have extensive knowledge about a variety of mortgage products in the U.S. for homebuyers and residential investors. By consulting a mortgage banker, applicants gain access to the numerous wholesale divisions of agency and portfolio lenders who use mortgage bankers as their loan officers.
Mortgage bankers act as an intermediary having professional knowledge of the lending institutions in the area. They will research the market for each applicant thereby saving you time and effort in your search for a mortgage loan. The first step will involve pre-qualifying your property and your financial situation. Pre-qualifying determines each applicant’s permissible price range by reviewing four basis characteristics: Income/Debt, Assets, Credit and Property for mortgage options that include Fixed Rate, Interest Only and Adjustable Rate Mortgages (ARMs). If the applicant is buying or refinancing a coop or condo, the banker will also determine the acceptability of the building which must also meet mortgage lenders guidelines.
Once you are pre-qualified, applicants must provide financial information for the preparation of your application. Your banker will assemble your information and will “sheppard” the loan file from beginning to end for the lending institution offering the most compatible fit for your financial situation. The banker should also coordinate with all parties to ensure that each client receives a commitment letter clear of contingencies.
As stated previously, the mortgage loan approval process generally takes 60-90 days from the signing of a Contract of Sale through closing. At closing, the banker does not charge the applicant fees for its services. Lenders offer lower rates to their mortgage bankers. Mortgage bankers are paid directly by the lender in a yield-spread premium that can range from 1%-2% depending upon the lending institution. If a mortgage banker has a good reputation and closing ratio with lending banks, this translates into preferred rates for applicants and preferential treatment of their submitted loan files. The result is an interest rate and monthly payments that is generally less than what you get using your local retail bank.
The four fundamental goals of every mortgage loan transaction:
- Provide applicants with the best service and counsel them on the product that fits their needs
- Supply every applicant with the lowest possible rate and point structure
- Present every applicant with an acceptable commitment letter in a timely fashion
- Offer every applicant the widest array of products in the industry
Chet Davis (Chet.Davis@guaranteedrate.com) has spent the last 30 years involved in banking and real estate finance specializing in the financing of small and large real estate investments, i.e., multi-family buildings, office buildings, shopping centers and industrial properties in the U.S. Chet is now affiliated with Guaranteed Rate focusing on financing single family properties, i.e., condo, coop and single family homes. Guaranteed Rate is the largest independent home loan company in the U.S. with more than 140 offices nationwide and 2500 employees ready to serve customers in person, online or by phone.