A house-full of packed boxes
It’s the day before settlement and the Settlement company calls you to let you know that they haven’t received the required documents from the lender. Your $10,000 deposit is on the line if you don’t close tomorrow (plus you are all packed and ready for the movers!), so you promptly get on the phone with the lender to see what’s going on.
Thankfully, your lender replies that all is well, that the documents are on their way and there is nothing to worry about (Phew!). All is well… but what if you hadn’t been able to get hold of your lender? Then what?
Getting a loan is the most important part of buying a home
When you are buying a home, the most critical piece of the entire transaction is your ability to obtain a mortgage loan. Which is why choosing the right lender is a very important matter.
Why choosing the right lender is very important
Since getting a loan is imperative (for most of us) in order to buy a house, finding a lender who will lend you the money on time for your settlement date is key. After all, if you don’t settle on time, you could lose your deposit, get sued for damages, and lose the opportunity to buy the house.
Unfortunately, the lender has little to lose
For you, the repercussions of not settling on time are very serious, but unfortunately, your lender doesn’t share those repercussions. To the lender, if the loan doesn’t get granted, they’re just behind one sale. They don’t get penalized with losing their deposit, or get sued for damages, or even have to deal with a mountain of packed boxes and have to find a new place to live ASAP. Which is why choosing a lender you trust is critical.
And you have to trust the entire organization – not just the person that you talk to on the phone.
When you are getting a loan, there are several people involved
- First, you correspond with a loan officer. The loan officer is the one who “sells” you the loan. S/he is your point of contact who qualifies you to see how much you could get a loan for, quotes you the interest rates, and estimates how much the loan is going to cost both monthly, as well as at closing.
- Once you commit to working with a loan company (a bank, or a broker), your loan goes to “processing” where a person called a Processor takes over your paperwork and handles things in the background.
- At some point, the Underwriter reviews all your paperwork to ensure it complies with the company’s guidelines and ultimately gives the OK to grant you the loan.
You want a solid mortgage lending company
When there are so many moving parts (guidelines, loan officer, processor, underwriter, etc.), it’s best to know that this organization works well as a whole. One way to find out if the whole company is effective is to know first-hand of someone in your similar situation who has been able to obtain a loan through them.
Which takes us to the 3 most common mistakes people make when choosing mortgage lenders:
The 3 most common mistakes when choosing mortgage lenders
The first mistake is an easy one to make in the Internet-era:
1. Picking mortgage lenders from the web
Many websites (small and well-known) advertise loans. They might even have plenty of positive reviews posted. But the bottom line is that there is no accountability to you. If something goes wrong with the loan – “who you gonna call?”
If the website is from an actual mortgage-lending bank, you might have a chance of talking to a customer representative on the phone, and hope that this person can actually help resolve your issue.
And many websites are only marketing front-ends and not banks
These marketing machines refer borrowers to a lender (for a fee). And most times, it’s hard to contact someone at the institution who is actually lending you the money (many times you might not even know who it is). And remember the online reviews that you carefully checked? They might not even apply to that specific lender…
As you see, selecting a lender based exclusively on online research is risky
But websites aren’t the only ones who refer borrowers to lenders. There are also “bricks-and-mortar” mortgage brokers who work in a similar way: they connect a borrower with one of many available lenders.
2. Choosing a mortgage broker
The good thing about a mortgage broker is that s/he can help you find a lender who would be best suited for your particular situation, and perhaps find you a great rate.
The not so good thing about a mortgage broker is that they don’t have ANY authority over the lender who is actually granting you the loan. If something goes wrong at the end of the transaction, the broker can simply wash his hands and say that he can’t help you. And the lender can also wash their hands and leave you hanging.
On the plus side, the mortgage broker is in business because several people have closed loans through them, and that’s a good thing. The problem is that one never knows if the next time the process will break – and you certainly don’t want to be the next one…
The way to avoid making these two mistakes is to work with a company whom you know has granted loans to people that you physically know (i.e. Your sister, uncle, friend, co-worker, etc.). But choosing only a company isn’t good enough. You also want to make sure that you work with an experienced loan officer within the company and not with a rookie.
3. Working with a rookie loan officer
Let’s say you choose a solid, reputable mortgage company who got your sister get a loan last month. But the loan officer who helped her is on vacation. So you call their main number and you get assigned to their newest loan officer (i.e. a rookie). The trouble with a rookie is that he might not know all the company’s guidelines. He might not get into the mind of the underwriter, which would allow him to foresee any roadblocks, to request all your documentation up front, and to stay on top of the process. Plus, he might not be the best communicator keeping you informed at every step of the process.
So what should your criteria be for choosing a great lender?
Ideally, you want to work with a mortgage company whose guidelines aren’t too restrictive for your situation. Even if you are a “cookie-cutter” borrower (i.e. have perfect credit, are not self-employed, are buying a principal residence, and have a strong financial position), you want a company who can work expeditiously and who can close the loan on time.
If you aren’t a “cookie-cutter” borrower then you need to ensure that the company that you work with is going to accommodate your needs.
And, you must find an experienced loan officer within the company who can navigate the internal bureaucracy and who can act like the quarterback of your loan process. After all, you don’t usually get to interview, choose, or even communicate with the processors or underwriters. You’re going to have to trust that your loan officer can get you through to the other side of getting the loan.
And what if this great lender doesn’t have the lowest rates?
What about choosing a lender based on their low rates and fees?
Shouldn’t you be choosing mortgage lenders based on the ultimate cost to you? Sure, you should! But you also want to make sure you trust the company. Going for the lowest rate online, or a broker who promises you a “lender credit” for your closing costs could be irrelevant if you don’t end up getting the loan… or the house…
In Summary
- Not getting a loan on the day of settlement could come with big repercussions to you
- To make sure you get a loan, avoid making the 3 most common mistakes:
- Picking a mortgage lender from the web
- Choosing a mortgage broker
- Working with a rookie loan officer
- Instead, find a lender who has granted a loan to someone you know.
Next Step
Don’t risk losing your deposit, getting sued, or even losing the house you love because of a bad choice in mortgage lenders. We have compiled a list of mortgage lenders who have recently closed transactions with our clients. Log in to see the list of our clients’ mortgage lenders.
Photo by Skrewtape on Flickr http://www.flickr.com/photos/skrewtape/851672959/
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