Buying a new home can be daunting. There are so many decisions. But, the most important decision you make regarding your house may have nothing to do with its size or design. It may be choosing the right lender and right loan. Says, Susanne Tauke, owner of the Newport Cove lakefront community in Antioch, IL, “The right lender and appropriate financing can make the buying process smooth and seamless; the wrong one can make it an ongoing nightmare.”
A recent J.D. Power survey found that 21 percent of homebuyers expressed remorse over their choice of lender, while an even larger portion of first-time buyers – 27 percent – had regrets.
The dissatisfaction rate is high for a reason. When getting a loan, one faces so many variables that it is difficult to streamline or automate the process.
Borrowers face a plateful of options – a big bank or a small one, a mortgage banker or an on-line vendor, not to mention the various loans themselves – 30-year fixed rate, 15-year fixed rate, jumbo, VA, FHA, a 3-, 5- or 10-year ARM (adjustable rate mortgage).
You can buy a home for as little as three percent down (or even nothing down, if you are a veteran). But, if you put less than 20 percent down, you’ll need private mortgage insurance or its equivalent, which can add roughly a $100 per month (or $1,200 per year) insurance payment to a $100,000 mortgage. (Mortgage insurance ends up being a relatively expensive term life insurance policy.)
Barb Kelly, assistant vice president of Home State Bank in Crystal Lake, reports, “Conventional, FHA and VA loans are very popular today and are offered in a variety of terms that will suit most buyers’ needs. Jumbo loans (which start at $424,101) also are very popular and, again, are offered in a variety of terms. Mortgage rates are still at historic lows, so long-term fixed rate loans are very attractive and what most consumers are looking for. ”
“Customers also are doing more loans with a five to 10 percent down payment,” she says. “This allow customers to leave their assets in the market since the return on their investments has been doing well.”
Pamela Zank, senior vice president of Guaranteed Rate and branch manager of its Northbrook office, says that credit is still the biggest issue facing homebuyers, but that loan availability is better than it was a few years ago. “Down payment requirements have loosened to three percent down in some products, so credit (as opposed to available cash) is the only issue for some clients. We have loans available for clients who have had short sales as well as foreclosures. It’s not as hard to get a loan as the media makes it out to be,” she reports.
How does the average Joe or Jane make sense of this plethora of options? It’s not easy.
You can make the process smoother by taking a few simple steps. Before you start your home search in earnest, select your lender. Then, make a few smart moves: 1) Verify that you have no issues on your credit report that would prevent you from buying. 2) Ask your chosen lender for a pre-approval letter. Be sure you go for the pre-approval, not its “lite” version, the pre-qualification letter. Why the pre-approval letter? The pre-qualification letter does not include checking your credit or your background for potential red flags that could complicate your purchasing ability later on.
How do you choose that mortgage pro? Ask family and friends who have recently made a home purchase, ask your attorney or financial advisor, even your builder or realtor. But, remember this one fact: First and foremost, the mortgage advisor or loan officer – even the online version – is a salesperson; he or she is selling mortgages. So, look past a smooth sales pitch and find someone who has a proven track record of providing a reliable (and customized) mortgage service.
If you prefer more personal customer service, you would likely want to go with a small lender. If you care more about rate than service, a large lender might be better. The bank where you keep your accounts is often a good bet.
Kelly says that her Home State Bank, a community bank with a 100-plus-year history, offers “service, service, service.” She explains that Home State has “all the services that the large financial institutions offer but with the small town feel. We spend time with our customers and get to know their needs. Every borrower’s situation is unique in itself. This is where the service we provide truly becomes important. We take the time to get to know the customers and understand their needs. Once the details are known, a clear path can be put in place to assist in helping customers achieve their goal.”
On the other hand, Pam Zank reports that Guaranteed Rate, a national mortgage banking company, has “40 different investors, so we have the ability to do loans that your local bank will not do. Because we do so much volume we have variances that allow us to do things for both Fannie Mae and Freddie Mac that the local banks do not have access to.”
The bottom line is this: Whether you’ll get the best deal from a bank, a mortgage lender or a mortgage broker often depends upon your personal situation, the person handling your case and what type of programs are offered at the time. So, do your research, find a mortgage provider who knows the business and listens to YOU!
And, if you plan to buy a house in the near future, you would be wise to do it now. Interest rates, still at historic lows, are rising. Home prices, stagnant for almost a decade, are increasing. The costs to build a new home are climbing rapidly. As the old adage goes, “He who hesitates is lost. . . ”