10 Tips for Selecting a Loan Officer/Lender/Mortgage Broker
04/08/07 10:14
With the mortgage industry in a state of crisis, it is more crucial than ever the loan officer or broker you choose provide sound financial advice tailored for your situation. It is important to look for a financial partner and not a mortgage "sales" person. With that in mind, here are some tips to help you make this decision:
1. Begin with referrals from friends and family but be cautious. Often times borrowers are not even aware they have been misled, overcharged or sold around products which may have been a better fit for them. Referrals are a good starting point but must only be one factor in your decision making process.
2. Understand the loan products being offered. This may be the most critical and most complicated tip of all. Mortgage products vary widely and the so-called "exotic" mortgages are some of the most complicated of all. Each day brings a new round of stories about increased delinquencies from borrowers whose adjustable rate loans are resetting and now they can not afford their payments.
A good loan officer or mortgage broker will explain how an adjustable rate loan (arm loan) may increase (or decrease). Arm loans are not bad loans, in certain situations they make perfect sense. Your loan officer should explain these situations and ensure you choose a product which meets your needs.
3. Take the emotion out of the process. This is harder that it sounds. Buying a house is emotional. You are busy deciding where to put your couch and thinking about how great it will be to have your own parking space (renters know what I mean), emotion leads you to accept any type of loan which gets you into the house. It is hard but you have to be realistic. Know what you can afford. Your loan officer will only receive a commission by closing your loan. Their motivation is to get you into a product which you will qualify for not which you can afford. Ideally, this product is one which will lead you refinancing a short time later thereby ensuring more fees and commissions in their pocket.
Your motivation must be your financial well being not decorating the family room.
4. Avoid the lenders that run commercials ALWAYS indicating interest rates are at all time lows and you should refinance now.
5. Beware the mortgage industry version of the bait and switch. This involves a low initial rate or low costs but as closing draws closers these mysteriously increase because your lock has expired or credit score has decreased or some other excuse.
6. Prepayment penalties - know what these are, how they work and what they mean to your ability to reduce your loan or sell your home. Hard prepayment versus soft prepayment.
7. Shop around. Shop not only lenders but learn about all the programs you may potentially qualify for such as low rate bond programs, "soft" second bond programs, community seconds and a variety of other types of programs out there to help low to moderate income, first time home-buyer and all other types of buyers. For example, veterans in certain states may qualify for housing assistance programs in addition to the standard VA benefits. If your current loan officer does not know about or offer these types of loan programs, a switch to a more full service lender may be in order.
8. Know your own financial situation. Do you have credit blemishes? If so, lenders promising those blemishes will not impact your deal should be able to explain exactly why. Don't be embarrassed to ask about the details. Failing to understand the details enables the bait and switch tactics to succeed. So you have had problems in the past. It either will or won't impact the transaction, a reputable loan officer or broker will be able to explain in detail the true impact. By having the discussion upfront, the loan officer will not be as likely to call you two days before closing to explain your interest rate increased or your closing costs have doubled.
9. Be prepared. Compile income, asset and employment documentation prior to beginning the loan process. Do you have two years employment to verify? Are you self employed? Does a stated income loan make sense for you? These are all questions you should be prepared to ask your loan officer or mortgage broker. Their answer is critical. Are they taking shortcuts in documentation which will cost you in rate or dollars so that your loan will be easier for them? An informed consumer is the best solution.
10. The truth is it can be very difficult to find the absolute best mortgage for your situation. In today's rapidly changing market conditions, those of us in the mortgage industry have a hard time keeping up with the latest set of guidelines. Honesty and integrity, however, are not subject to market conditions. Loan officers and brokers that are committed to the principles of helping people achieve the dream of homeownership rather than making a quick buck will be around long after the "bubble" has burst.
The good ones are out there, take your time and find them.
1. Begin with referrals from friends and family but be cautious. Often times borrowers are not even aware they have been misled, overcharged or sold around products which may have been a better fit for them. Referrals are a good starting point but must only be one factor in your decision making process.
2. Understand the loan products being offered. This may be the most critical and most complicated tip of all. Mortgage products vary widely and the so-called "exotic" mortgages are some of the most complicated of all. Each day brings a new round of stories about increased delinquencies from borrowers whose adjustable rate loans are resetting and now they can not afford their payments.
A good loan officer or mortgage broker will explain how an adjustable rate loan (arm loan) may increase (or decrease). Arm loans are not bad loans, in certain situations they make perfect sense. Your loan officer should explain these situations and ensure you choose a product which meets your needs.
3. Take the emotion out of the process. This is harder that it sounds. Buying a house is emotional. You are busy deciding where to put your couch and thinking about how great it will be to have your own parking space (renters know what I mean), emotion leads you to accept any type of loan which gets you into the house. It is hard but you have to be realistic. Know what you can afford. Your loan officer will only receive a commission by closing your loan. Their motivation is to get you into a product which you will qualify for not which you can afford. Ideally, this product is one which will lead you refinancing a short time later thereby ensuring more fees and commissions in their pocket.
Your motivation must be your financial well being not decorating the family room.
4. Avoid the lenders that run commercials ALWAYS indicating interest rates are at all time lows and you should refinance now.
5. Beware the mortgage industry version of the bait and switch. This involves a low initial rate or low costs but as closing draws closers these mysteriously increase because your lock has expired or credit score has decreased or some other excuse.
6. Prepayment penalties - know what these are, how they work and what they mean to your ability to reduce your loan or sell your home. Hard prepayment versus soft prepayment.
7. Shop around. Shop not only lenders but learn about all the programs you may potentially qualify for such as low rate bond programs, "soft" second bond programs, community seconds and a variety of other types of programs out there to help low to moderate income, first time home-buyer and all other types of buyers. For example, veterans in certain states may qualify for housing assistance programs in addition to the standard VA benefits. If your current loan officer does not know about or offer these types of loan programs, a switch to a more full service lender may be in order.
8. Know your own financial situation. Do you have credit blemishes? If so, lenders promising those blemishes will not impact your deal should be able to explain exactly why. Don't be embarrassed to ask about the details. Failing to understand the details enables the bait and switch tactics to succeed. So you have had problems in the past. It either will or won't impact the transaction, a reputable loan officer or broker will be able to explain in detail the true impact. By having the discussion upfront, the loan officer will not be as likely to call you two days before closing to explain your interest rate increased or your closing costs have doubled.
9. Be prepared. Compile income, asset and employment documentation prior to beginning the loan process. Do you have two years employment to verify? Are you self employed? Does a stated income loan make sense for you? These are all questions you should be prepared to ask your loan officer or mortgage broker. Their answer is critical. Are they taking shortcuts in documentation which will cost you in rate or dollars so that your loan will be easier for them? An informed consumer is the best solution.
10. The truth is it can be very difficult to find the absolute best mortgage for your situation. In today's rapidly changing market conditions, those of us in the mortgage industry have a hard time keeping up with the latest set of guidelines. Honesty and integrity, however, are not subject to market conditions. Loan officers and brokers that are committed to the principles of helping people achieve the dream of homeownership rather than making a quick buck will be around long after the "bubble" has burst.
The good ones are out there, take your time and find them.
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