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It used to be that home buyers would find a house first, then find a lender and seek a loan approval. In today's market, that method of home shopping has proven to be one of the least-effective methods for landing the right home.
Most lenders today are able to pre-qualify a buyer over the phone. Based on general questions about income, debt, assets, and credit history, lenders can estimate how much mortgage a buyer should be able to get.
Why get pre-approved: Being "pre-qualified" is not the same as being "pre-approved." Having a pre-approval means not only that the lender has talked to the buyer about the buyer's financial qualifications; it also usually means that the buyer has submitted a written mortgage application, and that the lender has obtained a credit report, verified employment history, checked assets and so on. When a buyer is pre-approved, he knows exactly what maximum loan
amount and purchase price he can expect.
A letter showing that a buyer is pre-qualified tells the seller and his agent that the buyer has been in contact with a lender and undergone some screening. However, it also tells the seller and his agent that the buyer's financial information and employment have not been independently verified. This makes the pre-qualification letter somewhat weak, especially when competing with other buyers who are pre-approved.
When a seller sees a buyer's pre-approval letter, he can feel more confident that the buyer is financially able to close the purchase that he is offering to make. The letter, effectively, gives the buyer much more credibility than does a pre-qualification letter.
Before getting pre-approved, however, a buyer must find the right lender. Among the best sources for home loans are mortgage brokers, mortgage bankers and credit unions. These sources tend to provide access to loans with the best rates and fees, and often are more customer-oriented than other institutions.
Mortgage bankers offer the broadest array of services. They have their own funds to lend, but may also arrange, or broker, the loan of purchase money from another direct lender. Mortgage bankers often provide loan servicing also. That means they collect the loan payments, account for the receipt of principal and interest, collect reserves for property taxes and insurance, and so on.
Mortgage brokers act as intermediaries. They don't have their own money to lend, so they arrange loans for a variety of direct lenders. The mortgage broker may have access to hundreds of different loan types and programs from dozens of competing lenders, making it possible to tap into whatever financial source is offering the best interest rate and lowest fees at the time you get your loan. Interest rates and fees can change daily, so it can be very important to have a loan professional with
access to a variety of lenders.
Although federally chartered and regulated, credit unions are simply member-owned cooperatives that exist for the banking benefit of their members. While the eligibility requirements for joining a credit union vary from one institution to the next, the basic concept is the same at any credit union: the members are the owners and the stakeholders, who have a leadership elected by the members to operate the institution for the mutual benefit of the members. Because of this, credit union rates tend
to be better than those at traditional banks, and credit unions may have more flexibility in the approval process, sometimes providing an edge for more marginal borrowers.
What to look for in a loan officer: Someone who is knowledgeable and well-organized. He or she should be an articulate, "straight-forward" communicator.
Buyers should seek out whichever of these persons offers the best interest rate, but don't just consider the loan officer's quoted rate. The APR, or annual percentage rate is more important because it also takes into consideration lender fees and some closing costs and provides a more true picture of the total cost of the loan.
What lenders to avoid: Those who seem disorganized. (Poor organization skills can delay funding of a loan, which can kill a deal just as easily as bad credit.) Avoid those who refuse to quote rates and fees until after submitting a written loan application or paying any fees.
Also avoid loan officers who fit the profile of the typical, "smoothing-talking salesman": the kind of people who talk relatively fast and monopolize the conversation. They seem cool and organized, but often hedge at giving direct answers to questions.
Remember, of course, that there are as many loan programs as there are kinds of buyers, so any loan officer won't be able to give unequivocal answers to every question. The answers to some questions will depend on a variety of factors that the loan officer can't yet know. However, the best loan officers will do everything possible to make sure the buyer gets the most complete and accurate answers to all of his questions.
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