The first step to a successful home buying experience is choosing your lender wisely. Mortgage lenders come in many types and sizes, and they offer different products and services. They have varied educational and ethical standards, and they have different levels of experience. With that said, it’s important that you choose the lender that’s best for your unique needs.
Many people may think that you should go straight for the mortgage lender that offers you the best rate, but there are so many other factors to consider.
Choose speed, efficiency, and credibility.
When you’re getting a mortgage, one of the most important steps in the process is closing. As the buyer, your goal will be to close on time and without issue.
A delayed closing can cause several inconveniences, such as penalty fees or missed moving-related appointments, not to mention stress. Having said that, lenders’ average closing times and on-time closing percentages should be a very important part of your lender decision.
NMLS stands for Nationwide Mortgage Licensing System, and it allows you access to administrative and license information for federal and state regulated mortgage lenders and mortgage bankers. Each lender and mortgage banker (loan originator), often referred to as a loan officer, receives a unique identifying number upon registration; their number will never change.
Because there is a process loan originators must undergo to become registered, you can feel more confident that you’re working with an individual who has met the requirements associated with their lender type. However, even better would be an individual who also has earned a state license.
What’s the difference between a federal registration and a state license?
According to NMLS, “Mortgage loan originators employed by banks, credit unions, and other federally regulated depository institutions must be federally registered in order to conduct business, and that registration is not limited to a particular state.”
On the other hand, a non-depository institution is a financial institution that doesn’t collect monetary deposits, but instead brings in payments to either invest or provide credit to others (i.e. an independent lender like Atlantic Bay). Mortgage bankers working at non-depository institutions differ because they’re required to be state licensed. The training and education standards are set very high to obtain a license, so they’re held to a higher level of mortgage competency.
With just a few clicks to the NMLS website, you can easily obtain information on if your proposed mortgage banker is licensed, whether they’ve been subject to any disciplinary proceedings, what companies they’ve worked for, and how long they’ve been in business.
Some lenders offer To-Be-Determined (TBD) underwriting, often referred to as up-front underwriting. With this type of underwriting, lenders may be able to issue you a conditional approval before you even have a physical address for a home.
Once you do have a purchase contract, the mortgage process is streamlined because the remaining items needed are minimized.
On the contrary, with lenders who don’t offer TBD/up-front underwriting, they don’t do a full credit and income review until you have a property address. So if any potential issues were to arise, they wouldn’t be discovered until after a contract had been signed, inspections scheduled, and ernest money deposit had been paid.
If you’re looking for a smoother, quicker process, consider a lender who offers TBD/up-front underwriting.
Know the lending options.
Independent Mortgage Lenders
Independent lenders, like Atlantic Bay, underwrite, approve, and close mortgage loans. They only do mortgages, so their sole focus is to find you the best mortgage option. Independent lenders may maintain some of their servicing rights, or they may sell the loans to banks, independent investors, or Fannie Mae or Freddie Mac.
As non-depository institutions, their mortgage bankers are required to be licensed in NMLS and in each state they conduct business.
Like independent lenders, banks underwrite, approve and close loans. These companies range from smaller local banks and credit unions to big-name national brands. They also offer non-mortgage financial services like credit cards, checking, and savings accounts. Banks often keep their servicing rights.
Their mortgage bankers are required to be federally registered, but not state licensed, meaning they’re not held to the same educational requirements of independent lenders.
A mortgage broker places loans with both independent lenders and retail banks on your behalf. The loan is then funded through the lender that your broker takes your loan to. In a sense, they are middleman between you and the loan originator, acting as a liaison between the two parties. Therefore, if you choose a broker, you won’t actually work directly with the bank or mortgage lender; everything will funnel through your broker.
Usually mortgage brokers make money by charging up-front broker fees and/or origination fees.
Find the right personal fit.
Often, a great way to find a lender is to ask for recommendations from friends and family. If you know someone who has closed on a home recently, pick their brain on their experience, their lender, and their mortgage banker. Ask what they loved, what they wish they would have known, and if they’d recommended who they used to get their mortgage.
Before making a lender candidate list, feel free to ask lots of questions. You don’t have to apply for a loan to interview. If you’re considering working directly with a mortgage lender or bank, ask about specific experience, turnaround times, and rate lock options.
If you’re using a mortgage broker, consider asking the following questions.
First, ask how the broker makes money on your loan. The mortgage broker should be able to explain any fees they may charge or percentages charged by the lender. If the compensation comes from the lender, be sure to ask if that will affect the interest rate you could receive.
Next, ask how many lenders the broker typically works with. You should be looking for a reasonable answer here. If the broker says something like “too many to count,” that should give you some apprehension. While brokers may have access to hundreds of lenders, they should have solid experience working with a smaller, more practical amount of lenders. Because each lender may have different processes and regulations, then the broker’s focus would be split among too many lenders, probably causing details to fall between the cracks.
Don’t forget to also ask about years in business as well.
Getting a home is likely one of the most significant purchases you’ll ever make in your lifetime. So you want to make sure that you have confidence in the individuals helping finance this purchase. You want to know that all your questions will be knowledgeably answered in a timely manner. You shouldn’t need to worry about harassing the lender to find out the status of your loan. So always consider the customer service you’ll receive from your lender.
When you call your interview list, ask yourself, do they seem competent and informative? Do they ask you the right questions? Also, were you ever on hold for a long period of time? Or if your call wasn’t answered right away, do they return your call in a timely manner? Do you feel rushed or pressured?
How you are treated and how you feel during these beginning stages are a good indicator of how the rest of the process will go.
Compare the financial details.
While all these details mentioned come into play, you’re probably going to be ultimately wondering, “What’s this loan going to cost me?” As you now know, you have several options where you can get your mortgage.
While you may have received several estimates that range in closing cost totals, keep in mind that those totals are just that — estimates.
The main three monetary things you can truly compare are lender fees (application or underwriting fees, origination charges, etc.), discount points, and interest rates.
After you’ve narrowed down the loan candidates, set aside some time to call everyone on your list for the financial specifics. But remember that rates can change daily, sometimes even multiple times a day. So comparing rates from lenders on different days could show disparities that are a a result of the market, rather than differences between the lenders.
In addition, be sure to compare apples to apples. Different programs, loan amounts, sales prices, etc. will result in different numbers.
Buying a house involves a lot of a huge decisions. But choosing the right lender can go a long way towards getting you in that new home quickly and smoothly. For more information on the mortgage process, visit the Atlantic Bay blog.