In this article, I want to talk about the different kinds of mortgage lenders and the importance of finding the right one for you. Choosing the right lender is very important, maybe even more important than choosing the right Realtor… NAHHH. But seriously, I do have another blog on, “How to Choose a Real Estate Agent.” (Link: https://realestateofhawaii.com/real-estate-blog/how-to-choose-a-real-estate-agent). Let’s start with types of lenders.
Direct Lenders:
Direct lenders are your banks and credit unions that originate mortgages directly to consumers. If you want to shop around, you can do so by sitting down with loan officers from the different direct lenders to see what kind of rates and terms they are offering, and that doesn’t cost you anything.
The good thing about direct lenders is that they typically manage the application and processing internally so it’s easy to get rates, terms and fees and then compare for yourself. It just takes time and effort. Another positive that I’ve heard some direct lender proponents mention is that you know upfront if the direct lender will also serve as the loan servicer. Some people like the convenience of their loan being serviced by the financial institution that they bank at.
Mortgage Brokers:
Mortgage Brokers are like the matchmakers between the lender and the borrower. They will find the best loan to fit the borrower’s needs. Of course, you’re adding another middleman that needs to get paid. The mortgage broker can either be paid by the borrower or the lender so check with each mortgage broker to see how they are compensated. Mortgage brokers can add flexibility in the loan process also. For example, some banks may not lend to purchase certain condominium complexes. A mortgage broker may potentially be able to find you a lender that will. Also, independent mortgage brokers sometimes can close more quickly than some direct lenders. Especially in these days with record low interest rates and a lot refinancing going on, being able to close in 30 days versus 45 days could potentially get the win in a multiple offer situation.
Other Lenders:
A few other types of lenders worthy of mention are correspondent lenders, these lenders originate and fund their loans but quickly sell them off. There are portfolio lenders: These comprise of small community banks, credit unions and savings and loans. The benefit of portfolio lenders is that they have their own underwriting policies that may allow you to get a loan that other lenders can’t underwrite. Hard money lenders are lenders offer loans to borrowers who either can’t qualify for any other type of loan, don’t want to go through the hassle, or looking for unique terms that traditional lenders can’t offer. Typically the rates and points are higher than traditional lenders and not used by owner occupant long term buyers, they are more to provide bridge loans until the borrower can qualify for a conventional loan.
Things to Consider When Selecting Your Lender:
The first thing everyone asks their lender is, “What are your rates?” It’s not all about the RATE. Of course, your interest rate is most important, but there are other terms of the loan and factors that should be considered. Make sure you’re comparing apples to apples. When you are comparing rates, make sure you’re comparing how much points you are paying for that specific rate.
Also ask the lender how quickly they can close the loan. As mentioned above, if a short close is important to the seller, this could be a deciding factor. If you are buying with a VA loan, you may want to work with a lender that specializes in VA loans.
One thing I want to get a good idea from when choosing my lender is how knowledgeable he or she is and how much guidance I can get from them. One example is I often get questions from my clients about if they should pay points up front or roll them into their loan. I basically tell them to figure out the break-even point, then decide if they are going to stay in the property longer than that break-even point. If they are going to stay in longer, then pay the points, because you’ll be ahead at the end. A good lender will give you this kind of guidance and at the least can calculate that break-even point.
This is the last thing to think about when choosing a mortgage lender. I have seen this for myself where real estate offers have been actually rejected because the seller did not want to work with the buyer’s lender. Yes, you heard me. I’ve also have heard seller’s agents tell buyers agents, if their buyer uses a certain lender, it will be a deal breaker. This may be something unique to Hawaii real estate in a strong seller’s market and not to say it’s a frequent occurrence. The point is, choose wisely!
So, there you have it, I hope this information helps you choose a mortgage lender. And to end with a quote from Artemus Ward, “Let us all be happy, and live within our means, even if we have to borrow the money to do it.”
