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How to select a lender

You have decided to purchase a new home.  Congratulations!  You are entering into a very exciting time, with decisions to make that will impact you for decades.  This article discusses one area of your decisions–how to select a lender.

The first question that needs to be addressed is to decide if you want a fixed or adjustable rate.  How long you expect to remain at this location is an important piece of information in making this decision.  If you know you will only be in the new house for a few years, then that makes the decision simple:  adjustable is better.  If you are fairly certain you will remain there for many decades, then the inclination is to go fixed.  Another variable, which no one knows, but about which your opinion is as good an any:  will economic pressure tend to be inflationary or deflationary.  If you think inflationary, then that increases the attractiveness of a fixed rate.

The next phase is to begin gathering information.  If you don’t have strong indications from the above variables, then you’ll need to gather information for both fixed and adjustable rates.  I would call a minimum of three potential lenders, but I recommend many more than that.  The number is only limited by what you have the stomach for.  The information gathered should be consistent for each lender.  Be sure to keep tract of the name and telephone number of each information provider.  Don’t forget the mortgage brokers.  For the first time in 30 years, in the 3rd quarter of 2016, non bank lenders made more loans than banks.

Some sample questions:  what is the rate;  what is the length of the loan;  what is the percentage of the purchase price the bank is willing to lend; what are the charges the bank collects to make the loan (this one needs to be quantified with specificity); will mortgage insurance need to be purchased;  if an adjustable rate is being considered, is there a product that includes a fixed rate for a number of years;  will this lender service the loan or will it be automatically transferred to 800 world.  This last question is only for banks–the answer is obvious when talking to a mortgage broker.

Don’t expect this information gathering to be easy or quick.  This will take many hours over many days and will require a lot of left messages and frustrating waits.  But eventually, a pattern will start to emerge and you will see what is available.  There will probably be several products that are similar or identical and you will need to pick one that is going to be best for you.  I suggest that if other variables are the same, pick a bank that will service its own loan.  It is nice to be able to go back to a real person at an office near you and deal with issues that may arise.  Also, the smaller and more local the bank, the more likely you are to have a satisfactory experience.  If you qualify for State Employees Credit Union, they are always a good choice.  However, I would go with the best terms, whoever they are with;  the above considerations may never come into play.

This is a good starting framework.  Be sure and keep your notes, including who you talked to and when and make sure that each step, as the terms become more and more definite, that they are consistent with the previous conversation.  Eventually, you will get a written statement of the loan estimate and eventually the closing disclosure that lays out all the terms.  Be sure to keep all the paperwork organized and keep the previous information until the next writing is available.  Then take the latest information with you to the closing and make sure the promissory note and closing disclosure are consistent with the previous information.

Good luck and I hope you find the perfect house for yourself.