You made a few phone calls to mortgage companies, checked rates on the web and narrowed your search to a few brokers or lenders who all have the same, reasonable interest rates.
How do you choose one over the other?
First of all, kudos to you for doing your homework.
While buying a home is generally the biggest financial transaction an individual or couple will ever conduct in their lives, finding a source of money to pay for that home can be just as important.
When you consider most home loans are in the 15-to-30-year range, choosing the wrong broker or loan can be costly when compounded over a long period. How costly? Many thousands of dollars. Even when you discover a better deal later, refinancing a loan comes with extra expenses and extra headaches in terms of paperwork, taxes, fees, etc. Therefore, it is obviously smart to get it right the first time.
Here is a list of criteria you can use to find the right mortgage broker:
- Initial Rapport - Paying attention to the first conversation you have with a broker may seem like an obvious need, but look at the process almost like a first date. You gain some very important insight into the type of broker you are dealing with by listening to what is going on between the lines.
Sure, they may try to enamor you with how great the rate is they are offering, but there is more to a mortgage than just a low interest rate.
First off, what are their points and fees? Some brokers might offer a great rate, with zero or low points, but still attempt to grab some of your hard-earned dollars with high processing fees. You can get those fees in writing with a Closing Cost Estimate or a more formal Loan Estimate (which we will discuss next).
Secondly, while it might seem there are only a few options for a mortgage -- the standard 30-year Fixed Loan, the 15-year Fixed Loan, the 5/1 Adjustable Rate Mortgage -- the reality is that every person's situation is different.
Be sure to discuss the details of your circumstances with the broker. Note whether he or she presents all suitable options that may be available to you.
Perhaps a 20-year fixed rate loan fits in better with your retirement plans. Or maybe you qualify for a 30-year Federal Housing Administration loan backed by the federal government. Alternatively, you may have sufficient cash to make a larger down payment, and thus want to know the advantages and disadvantages as per monthly payments, tax deductions, etc.
If the broker or lender quickly shrugs off exploring alternative loan products, then perhaps you should shrug them off and look elsewhere.
Another key factor involves the broker’s willingness to spend time with you. While federal changes in financing made by the Dodd-Frank Wall Street Reform Consumer Protection Act made many adjustments in how mortgages are provided, the paperwork is just as complicated and the requirements from lenders are even more restrictive. You will want a broker who is going to help guide you through this maze. If you feel that he or she is rushing you through the initial meeting, that might be a red flag they won't really be there when you need them later.
- Loan Estimate - A broker can tell you all sorts of things and many of the terms and numbers they use are sure to get your head spinning. One of the first things you want to get from them is a Loan Estimate form. There, the broker has to spell out the interest rate, the Annual Percentage Rate, their fees, and the fees associated with that loan.
When you ask for the Loan Estimate, also be sure to ask for the broker’s state license number, even though it will be clearly marked on the Loan Estimate, their website and even their emails. This gives the broker a heads up that you are thorough in your research and have the capability of filing a complaint with the state if necessary. Also, ask them to guarantee the rate, the points and their fees in writing.
- Years in Business/Referrals - Another way to sort out one broker from another is to simply ask them how long they have been in business. That should not be the only qualification because some reputable brokers may be in business for only a few years. However, if they are reputable, then they should have garnered referrals and testimonials as well. Ask them which local real estate agents they work with. Do they have any letters from satisfied clients?
- Reviews/Complaints - The Internet is a fantastic tool for keeping local business people honest. Visit the Better Business Bureau website - www.bbb.org. Do a Google search with the company name and the word "complaint." See if anything pops up. If consumers had truly bad experiences, many will take the time to post a negative comment. You can also check Yelp or Google Maps. Many brokers do not have any reviews. Nevertheless, some brokers who are very cognizant of their reputation may have taken the time to nurture positive comments from their customers.
- Availability - The mortgage process is complex and stressful. So you want to be sure your broker returns your phone calls promptly, or, failing that, has an assistant who can help as well. Ask for a cell phone number and inquire if the broker is available after hours if you have a quick question that needs to be answered immediately. Also, ask that broker if they will promise to stay with you from origination through the closing. As the closing data approaches, this accessibility is crucial to your peace of mind and for you to get that financing ready when the time comes to sign the papers.
While you may find some brokers with great rates on the web, if you find someone locally with the same rates, it might make good sense to choose them. Sometimes you might prefer just to sit down in their office to get the answers you need. Moreover, you can pick up and drop off documents quicker.
Focus on choosing a trusted mortgage broker or lender who is going to hold your hand through the process. You will then eliminate one of the biggest sources of stress in any real estate transaction.