Josh and Christy
"Robin, Christy and I wanted to write you a letter to personally thank you for helping us purchase our 2nd home. Our first home buying experience left us a little "gun shy" and we were skeptical as moved forward in finding a new place to live. Thank you for making it easy!"
Buyers

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Step 2: Finding a Good Lender

How to find a mortgage lender

The best way to find a mortgage lender is to ask for recommendations from people you trust.

Referral sources

  • Realtor referrals – If you work with an experienced agent who can vouch for lenders, ask for recommendations. The Real Estate Settlement Procedures Act prevents agents from taking kickbacks or referral fees from service providers. Buyer’s agent Robin Guernsey has worked with a lot of lenders and mortgage brokers and can recommend some good ones for you to interview.
  • Friend referrals – Ask friends who have recently bought or refinanced a home about the lenders they worked with. Did their lenders do a good job of explaining the options clearly? Did they lock in the rate they promised? Were there any surprises at the closing? How close were the final closing costs to the good faith estimate? Were they responsive and able to deal with questions or problems quickly?
  • Online directories – With online directories, you can easily get estimates on mortgage rates from a huge number of lending companies. Just be careful of internet lenders who promise really low rates without any documentation.

Types of lenders

  • Bank or credit union – Banks make loans. Most banks have loan officers who control the loan and can make decisions on their own, even if the loan eventually gets resold to another bank.
  • Mortgage broker – Mortgage brokers do not make loans but, rather, find loans for clients. Unlike a bank’s loan officer, who can usually only offer loans provided by his/her bank, mortgage brokers shop for loans from dozens of lending institutions to get the best terms.
  • Family – A properly structured and documented intra-family loan is as official as a bank loan, and the interest payments are just as tax-deductible. Make sure you get help from a good real estate attorney before you go down this road, though.

Before you shop for a lender, do your homework

Do your homework first, so that you know what you’re looking for and what your options are.

Interview at least three lenders

As with choosing a realtor, you should compare three or more mortgage lenders or brokers before you make a decision. MortgageMavin does a good job of walking you through the process of evaluating lenders.

When you talk with a prospective lender or mortgage broker, ask about:

  • The par rate for a 30-year fixed loan (If they don’t have this at the tip of their tongue, run away!)
  • Types of loans they offer, including terms, fees, interest rates, points, escrow terms, and loan servicing
  • The annual percentage rate for the types of loans they could match you with
  • How they get paid and how their fees are calculated
  • Who would approve your loan
  • Their ability to work within your timeline
  • Getting a good faith estimate of closing costs
  • What kind of customer service is available after you get your loan
  • How they will protect your confidential information
  • How long they have been in business
  • If they can provide references from recent clients
  • Their credentials as a Certified Mortgage Broker
  • Their membership in organizations like the Upfront Mortgage Brokers Association, the National Association of Mortgage Brokers, the Mortgage Bankers Association, the Better Business Bureau, and Madison's Chamber of Commerce.

Loan pre-qualification

If you want to be taken seriously by sellers and their agents, you should get pre-qualified for a loan in order before you even start looking at homes. This means finding one or more lenders who will put into writing, in the form of a pre-qualification letter, how much money they are willing to lend you.

Getting pre-approved requires that you find a lender and apply for a loan. Applying for a loan does not obligate you to accept the lender bank that qualifies you for a loan.

Step #3: How Much Can I Afford?