Checklist - Shopping for a mortgage loan

Best CHECKLIST - Shopping for a mortgage loans

Minneapolis, MN: Face it, few of us can pay cash for a home, so you are going to need a home mortgage loan. A little bit of information can go a long way into determining who to use for your financing and why.

Mortgage Loan Types
Most people will end up with one of the standard tranditional loans; a Conforming conventional loan (Fannie Mae or Freddie Mac backed), and FHA loan, a VA loan for our military personal, or a USDA Rural Development loan.

These loans all have the exact same underlaying guidelines, no matter what bank, broker, or lender you end up selecting. So don't think one company has anything better than the next.

Closing Costs
Same goes with loan closing costs. Don't be fooled. All lenders have essentially the same closing costs. This is because the bulk of closing costs are NOT the lenders. They are everyone elses, including appraiser, credit report, state taxes, title company, recording fees, and more. Only a portion of your closing costs are the lenders actual costs.

I know many of you are thinking, but wait, some lenders don't charge things like loan origination fees, which is typically 1% of the loan amount. So selecting that lender is better.

Well, not so fast. So the lender works for free? Of course they don't. Any lender 'not charging' common costs, or offering to pay something on your behalf (like a free appraisal) is just shifting the up-front closing costs into the interest rate of the loan. In most cases, a lender will waive loan origination for an increased interest rate of about 0.25%.

Waiving fees in exchange for a slightly higher interest rate is not a good thing or a bad thing. It is just something that needs to be understood by the home buyer, and then examine the benefits of one or the other.

TIP: Be wary of any Loan Officer not explaining that no origination, or no lender fee options come with higher interest rates.

Interest Rates
All lenders get their money from the same source on the same day at the same time, and set their interest rates based on the exact same bond market. If my rates go up, so do theirs. If their rates go down, so do mine. This is why you notice all lender interest rate as so close to each other.

So are lender interest rates different? Yes!

But the true difference comes down to primarily just overhead. The bigger the bank, the more locations, stadium naming rights, paying huge fines for past sins, and advertising all day long on TV, radio, and internet all add up to them needing higher margins that need to be passed along to you.

Check today's interest rates in MN, WI, SD

Loan Officer Qualifications
Scary as it sounds, the vast majority of Loan Officers are NOT personally licensed. Rather, they are simply registered. Even your hair dresser needs a license, but you are going to let an unlicensed person handle your largest financial transaction?

Your Loan Officer's experience level is a HUGE consideration. About 10% of the success of your transaction is the company you choose, while 90% of the success is the Loan Officer you choose.

TIP: Contact me for information on determining if your Loan Officer is Licensed or simply registered. Sadly no, just asking them isn't enough.

Bank, Broker, Credit Union, Mortgage Company
All four options will get you a loan. But there are many differences. Banks and Credit Unions typically only offer limited options, and their own products. Brokers and mortgage companies typically offer all options, and options from multiple lenders. So they can shop around. Banks and Credit Unions typically have unlicensed application taker type Loan Officers, where brokers and mortgage companies tend to have licensed Loan Officers. Also refer back to the section on costs. Your non-bank lender and brokers typically have the better rates because of lower overhead.

Good versus Bad Referrals
We are all told that getting a referral of a Loan Officer to use is a good way of picking. In theory, this 'should' be good, but is it? Consider these common referrals:

You trust your friends, relatives, and co-workers right? Typically their referral is based on just one transaction. Did they have an easy file, or just a fluke the Loan Officer did a good job? Referrals based off MANY transactions is a much stronger indication.

Your Real Estate Agent should then be a good source, as they should have had many transactions with the Loan Officer. But this too may be misleading. For example, many Real Estate Offices push super hard to have the Agent 'refer' you to their own in-house lender. Is this a good referal with the best rates and costs, or is this more in the Real Estate Companies best interest because they then make money on doing your loan too?

On the other hand, an Agent referring you to someone they have worked with for years, the referral is only based on positive experience and no other ulterior motive, can be a good referal.

The Bottom Line
Whoa, this is way more complicated than people think. Most people blindly call the bank where they have their checking account, or just accept who their real Estate Agent tells them to call.

So what is the right choice? There is no simple answer, but here are a few tips:

- Stay local. There is nothing on the internet you can't get from the lender down the street.

- Talk to at least two lenders

- Do you like them? Do they sound knowledgable? Are they high pressure?

- Beware of gimmicks. Nothing is free, and you always pay somehow.

- A referral is fine, but if someone is pushing you to use one person over another, there is usually a financial reason they are doing that.

- Only work with a licensed Loan Officer, not one simply registered.

- Only work with experienced Loan Officer's. TIP: Someone with a NMLS number under 500,000 means they've been around awhile.

- Google your Loan Officer. What do you find?

Good Luck. Remember, this is typically your largest financial transaction of your life. Spend a few minutes selecting your Loan Officer.

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Joe Metzler is a Senior Mortgage Loan Officer for Minnesota based Mortgages Unlimited. He was named the 2014 Minnesota Loan Officer of the Year, and Top 300 Loan Officers in the Nation for 2010, 2015, 2016. 

To finance with Mortgages Unlimited, your local preferred lender for Minnesota, Wisconsin, and South Dakota, simply call  (651) 552-3681, or APPLY ONLINE. NMLS 274132.