How to Shop for a Mortgage

Getting the best home mortgage loan when you buy a Seattle or Eastside home is an important part of making a smart real estate investment. This means it’s crucial to find a lender who can offer you a good loan package, and who can come through with what they promise on time. Here are some tips on how to find the best home financing.

Getting Pre-Approved

First of all, you’ll want to get pre-approved with one or more lenders as soon as you start shopping for a home. Even if you’re not in a hurry to buy, keep in mind that the point is simply to be prepared to act on a great opportunity should one arise. Most pre-approvals are good for 90 days (check with the loan officer), and you should be able to consult with several loan officers or mortgage brokers to discuss loan options without being charged more than the cost of a credit report, which is usually around $20 to $30. Many will not even charge you for this unless you complete your loan through them.

Pre-Approval vs. Pre-Qualification

A loan officer can give you some idea of what you might qualify for just by speaking to you over the telephone, and it’s not uncommon to be issued a ‘pre-qualification’ letter after a brief conversation. However, in order to present yourself as a serious homebuyer you should obtain a ‘pre-approval’ letter, which means that the loan consultant has actually checked your credit and seen written documents verifying your financial situation. Again, this should not cost you more than the price of the credit report, and it should not commit you to using that lender.

Banks vs. Mortgage Brokers

When you walk into a big lending institution you have the option to talk with a loan officer about the loan products available from that lender. Another option is to go through a mortgage broker, who shops around and finds the best loan programs offered by various different lenders, including some of the large banks like those mentioned above. Sometimes brokers also work for a lender, which means they can either broker out the loan or do it in-house (which may allow them to be more flexible on terms.)

Compare Apples to Apples – Here’s How:

Get Rate Quotes on the Same Day:

Rates change daily, so if you’re comparing lenders it’s a good idea to try to get a good estimate from all of them on the same day.

Don’t Let Rates and Points Confuse You:

It can be very confusing to try to evaluate a quote for a loan that has, for example, a 4.25% interest rate with no points paid at closing, with one that has a 4.00% rate and half of a point paid at closing. The first one has lower up-front costs but a higher rate, while the second one costs more but has a lower rate. Which one is the better deal? Unless you’re ready to unleash your inner Stephen Hawking, try this:

Ask for quotes with one variable held constant. For example, if you ask three different lenders for a home loan quote at a 4.00% interest rate, then the only variable that will change will be overall cost. Or, you can ask for quotes with a fixed cost amount, and then the only variable that will change will be the interest rate. Without doing this it can become very difficult to distinguish which loan is the better deal.

Get a Written Estimate

You should get a written estimate of loan costs that allows you to see what charges are associated with the loan. Lenders are no longer able to provide you with an actual written “Good Faith Estimate” until after you have a contract signed around on a home, but they should be able to put a good estimate together in writing for you regardless. I’m not supposed to act like an expert in financing, but I can usually look at your cost breakdown and at least tell if there’s something way off base as far as what you’re being charged. When in doubt I’ll also run it by one of my trusted lenders.

Ask About Your Options

A good loan consultant is usually able to offer you several different home mortgage options, and clearly explain the differences between each one.

If you are putting less than 20% as a down payment, ask if you have alternatives to paying Private Mortgage Insurance (PMI). These days (post-finance reform) it’s much harder to get second mortgages, so whereas five years ago virtually no one was paying PMI, it’s now the norm again for loans with less than 20% down.

The Mortgage Professor website has some great tips on comparing fixed-rate versus adjustable-rate mortgages, as well as mortgage calculators and a huge amount of other mortgage-related information.

Go With a Loan Officer You Understand

Finally, be careful to choose a reliable loan officer. This will save you money in the long run.

Even if someone is referred to you by a friend you still need to proceed carefully. One of the worst lending scenarios I’ve seen nearly happened to clients of mine who were working with a “trusted lender” who had been recommended by their well-meaning friends. Fortunately, disaster was averted by another mortgage broker (Liz Fudacz) at the last second, but they could have lost their earnest money when they delayed the closing by not signing the loan documents on the scheduled day. (Those particular loan documents were beyond belief – I have described them as “written on magical parchment with disappearing ink.”) And this was a guy with a well-known bank who assured me he specialized in guiding first-time buyers.  Anyway, fortunately Liz was able to get them a new loan with a low fixed rate (the other lender’s loan had an adjustable rate and cost more) and still close quickly, so everything turned out well.  But it really demonstrates how careful people need to be when it comes to lending situations.

The Bottom Line About Seattle and Eastside Home Loans

There are some very good loan officers out there, but give yourself enough time to do your research, and choose carefully. There are plenty of other things to take into consideration when deciding on things like paying points versus no points at closing, for example, how long you plan to own your home. A good loan officer can counsel you on how to make the smartest financial choices based on your specific circumstances and goals.

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