You've decided to take the leap into the current real estate market and make the move to buy a home. For many of you, it will be your first home and for others it may be a larger home (after selling your current home). For some, it may even be a second home where you and your family plan to spend vacations.
Whatever the need, unless you have a boatload of cash to make your purchase, you already know that the first thing you need to do is talk to a lender and find out how much you can afford to buy.
So who do you talk to? For some, you may talk to the mortgage professional who did your last mortgage and if you were happy with the service that you received from that person and you've stayed in touch with each other over the years, that is most certainly a good place to start.
However many of you will either not have a previous mortgage professional that you have an established relationship with or you were not pleased with the service of the previous mortgage person you worked with. So what do you do? You find a new Mortgage Loan Originator (MLO) to talk to but where do you find someone like this?
The best place to find an MLO to talk to is to ask people you know, trust and respect if they know a really good MLO. Ask your friends, relatives, co-workers, neighbors and especially ask anyone you know who has recently purchased a home. This folks is one of the best ways to find a good MLO. I will address the steps to choosing a good MLO in more detail in an upcoming post.
Once you have done this, you're probably going to get a whole list of people from a variety of different organizations. Some will work for a direct lender and some will work for a mortgage banker and others a mortgage broker. While there are pros and cons to working with each one of these types of organizations, the most important part of the equation to remember here is that the actual MLO who will be originating your loan file/package can be the person who can make or break your entire loan transaction. Once again, I will go into greater detail on this topic in an upcoming post.
On that note, let's get a little background information out of the way because there are some things that are characteristic of most mortgages these days regardless of where they are originated and who originates them. First and foremost, virtually most mortgage loans originated today are sold off to the secondary market shortly after the close of escrow. The only exception here is with portfolio lenders, however, even portfolio lenders can eventually sell their loans to the secondary market. I will explain this in more detail in an upcoming post
So what does this all mean? This means that regardless of where you decide to go to get your mortgage loan, the company that you decide to go with will more than likely NOT be the company that will be servicing your loan; the company where you will be sending your monthly payments to.
Furthermore, depending on what type of loan product you get, the same program guidelines for that loan product will apply to every loan and every borrower regardless of whether they are working with a direct lender, a mortgage banker or a mortgage broker.
For example, if you are getting a conventional loan, in order for your lender (regardless of what kind of lender they are) to be able to sell your loan to a government sponsored enterprise (GSE) in the secondary market so that it can be packaged as a mortgage backed security (MBS), the loan must adhere to certain guidelines. The same goes for government loans; in order for the government agency to be able to package the loan into an MBS as well as insure your loan, your loan has to be originated, processed, underwritten and funded in accordance to the government agencies guidelines, regardless of where you go to get the loan.
The three major GSE's in today's secondary market are Federal National Mortgage Association (aka Fannie Mae), Federal Home Loan Mortgage Corporation (aka Freddie Mac) and Government National Mortgage Association (aka Ginnie Mae).
With the exception of Ginnie Mae, GSE's purchase mortgage loans from lenders so that the lenders have additional funds to lend more money to new borrowers. At this point, I want you to remember one thing about this stage of the process: "if a lender can't sell it, they won't fund it - period". Once again, with the exception of some portfolio lenders.
Furthermore, there will also be additional guidelines that are applied to your loan transaction that must be adhered to in order for your lender to be able to sell your loan on the secondary market to a specific investor. These additional guidelines are called "lender overlays". Different lenders will often have different overlays depending on the investor that they will be selling your loan to after the close of escrow.
I know this all sounds confusing, especially since you just wanted to know how to choose a lender. While this can be confusing to most buyers looking for a lender, it is info that is good to know in order to understand what's important when choosing a lender. While it may seem like where your loan ends up at is really important and for some it may be, the more important thing to consider is how the lender and MLO you choose is going to benefit you in buying a home?
Please stay tuned for Part 2 where I will outline some of the various types of lenders and MLO options that buyers have available to them today.
CHOOSING YOUR LENDER: How Do You Know Which Lender is Right for YOU! - Part 2
CHOOSING YOUR LENDER: How Do You Know Which Lender is Right for YOU! - Part 3
CHOOSING YOUR LENDER: How Do You Know Which Lender is Right for YOU! - Part 4
CHOOSING YOUR LENDER: How Do You Know Which Lender is Right for YOU! - Part 5
CHOOSING YOUR LENDER: How Do You Know Which Lender is Right for YOU! - Part 6
Photos courtesy of flickr: steverose57 martianmermaid fanniemae freddiemac madmannequin
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