Homeownership is a dream that most people would like to see fulfilled. The basic 5 steps to finding the right home lender have been the same for years. The only thing that really changes is the internal process. Finding the best lender involves more, it is not just the best interest rate, but more.
Central Florida real estate agent Fred Franks of Local Realty Service and Ocala real estate agent Katrina Barone of Housesforsaleinocalafl.com enlist the five steps to find the right home lender.
Step#1: Prepare your credit
Do your homework. It is good to start early, so the first thing that needs to be checked is credit report and the FICO score. Study the report well and look for inaccuracies since almost 80 percent of the reports usually have errors and only a few people tend to study the reports regularly.
People tend to look for inaccuracies after they get rejected by lenders and then get them corrected. This can be easily done on websites like annualcreditreport.com. Get your free credit report from Equifax, Experian and the TransUnion, all the three major credit bureaus.
If you have a credit card then, it is good to keep a cap on the credit utilization rate or the credit available for use. Pay off credit cards and loans before purchasing your home then there will be enough money for the down payment.
Step#2: Budget
It is time to set a budget before buying a home or even visiting the lender which should include down payments, real estate agent fees, closing costs, and appraisal as well as inspection costs. It is time to gather all the important documents.
Step#3: Know the lenders and compare the rates
It is difficult to know the best lenders in town, so you can choose from the most common ones. Search the Better Business Bureau for reviews and other information related to lenders in the state you intend to buy a home.
- Credit unions – These financial institutions offer good interest rate by joining one.
- Mortgage Bankers – They package loans for Bank underwriters.
- Local mortgage loan companies – They rely on other lenders.
- Community oriented financial institutions – Savings and loans are worth seeking.
- Mutual savings banks
It is good to search the best mortgage rates online and shop around for the best lender with the help of a mortgage broker. This saves some time and is hassle free. The rates mentioned online are just indicative and not the actual rates since the rates usually depend on the credit scores and the loan application at the time it is filed.
The best way to choose the right lender is to compare all the costs and then decide which one makes financial sense.
Step#4: Interview and know your lender well
Once you have a list of lenders then it is time to interview your lender to know them well and their working style. Talk to lenders about the different mortgages available, grants, fees and the closing amount that is required. Use your research to leverage the best rates. This is one of the most important factors in finding the right lender.
- Find out how they prefer to communicate –in person, text, emails, or phone calls.
- Their response time is important
- The lender fees you will be liable to pay at closing - commission, loan origination, points, appraisal, and credit report, application fees and if any fees will be waived off or rolled into the mortgage.
- Down payment requirements. If you are looking for low down payment options - FHA, VA or USDA loan lenders are your best bet.
- The turnaround time for loan pre-approval, appraisal and closing
- Check if buying points is a good deal as it can lower the interest rate by a certain percentage. By paying for additional points, thousands of dollars can be saved over the life of the loan.
Step#5: Read the documents including the fine print
Once you have selected your lender, it is time to apply for the loan. Some lenders require non-refundable earnest money deposit to start the loan process. If the lender is vague about the circumstances the earnest money will not be returned then it is good to shop around for another lender.
The cost of homeownership includes the principal and interest payments on a mortgage, closing costs, points, loan origination fees, transaction fees, title charges, insurance and many other costs. It is good to know what each of the fees includes.
Examine the loan documents for initial loan estimate, closing disclosure as it tells the exact finance terms, and who is responsible for the closing costs, home inspection contingency, closing date and the items that are included in the home.
Once the loan is approved, look for the home of your choice and one that is within the budget based on the pre-approved loan amount. One must ensure there is enough extra cash to cover some extra fees. You can ask your lending firm to add an extra amount to cover for the additional fees.
