Buyers have always had to do their homework to find a good lender. The task is doubly difficult this year, however, because there are fewer lenders now than before the market crash, and those left are considerably more demanding.
Would-be borrowers, however, have a number of resources at their fingertips to help them in their search.
A good starting place is the bank or credit union where you currently have an account.
“They may have a lot of information about you that would streamline the loan application process,” says Greg McBride, a senior financial analyst with Bankrate.com. “But you don’t want to stop there. You need to see where your best deal is.”
Casting a wider net is essential because it’s hard to recognize a good offer if you have no basis for comparison. Family and friends can be a good source for recommendations and Web sites like LendingTree.com or Bankrate.com enable you to broaden your search based on the type of mortgage, amount borrowed and location. For instance, a recent search on Bankrate.com for a 30-year fixed-rate $250,000 loan in the D.C. metro area with no points and a 5 percent down payment turned up four possibilities: a national bank, a local bank, a mortgage company and an online lender, all with rates around 5.5 percent. The rates were for borrowers with excellent credit.
Your real estate agent can also suggest lenders, either companies the agent has worked with before or an in-house lender affiliated with the agency. Agents don’t get paid for such referrals and won’t knowingly refer you to a poor lender, even one in-house, because they want the sale to go through, says Tim Wilson, president of Long & Foster Cos.
Besides the convenience of one-stop shopping, the proximity of an in-house lender ensures that your loan is carefully shepherded to closing.
“The Realtor can easily access that loan officer, so the paperwork gets a lot of eyeballs looking over it,” Wilson says.
Even so, an in-house lender may not offer the best terms, so it’s important to compare the offer with other lenders.
Some of the best rates often come through mortgage brokers, who have access to wholesale rates that are often half a percentage point less than the same retail product from a bank, says Christopher Cruise, a loan officer with mortgage broker GOTeHomeLoans in Bethesda.
But, because brokers earn a commission that is often factored into the loan’s cost, they developed a reputation in recent years for charging exorbitant hidden fees and pushing borrowers into unsuitable products.
The problem was so acute that in 2006 the Upfront Mortgage Brokers Association was formed for brokers who disclose a flat fee and pledge to act in a consumer’s best interest. These brokers give accurate good faith estimates, with no “dramatic changes from the time of application to closing,” says Cruise, who works for the only upfront broker member in the D.C. area.
New regulations that will go into effect next year will force all brokers to be more transparent, he says. “Many of the tricks of the trade are going to be banned as of January 2010.”