Choosing a Lender

Choosing a lender is one of the most important steps to take before beginning your house search. Learn how to choose a lender and what are the most important questions to ask when interviewing lenders.

Watch this informative video or continue reading below...

Hopefully, you’ve watched my first steps video and you know how important it is to get pre-approved with a lender before beginning your house search.

To quote a famous line in the Indiana Jones movie, “You must choose, but choose wisely.”

Lenders vary DRASTICALLY. From fees to interest rates to programs offered to the way they manage their underwriting process. It’s soooo important that you ask the right questions before deciding on a lender. And don’t assume your bank is the best way to go. They are often the worst when it comes to bad surprises and delayed closings. Ask for referrals and read reviews. 

These are some of the most important questions, but if you contact me, I’d be happy to send you a detailed list of questions to ask.

Important Note...

Most lenders will want you to start the application process right away. Let them know that you are just gathering information for now. 

First, figure out is what type of loan program you might need.

Are you limited on the amount of money you have saved for closing? Do you already have a big down payment saved up? Are you self-employed? Are you at the point in your life where you’re interested in a reverse mortgage to afford a bigger or nicer home or have more cash flow? Your answer to those questions will make a big difference in the lender you should work with.

  • Limited Funds.

If that’s your situation, that’s OK. There are some really great down payment assistance programs available, and they’re not just for first-time homebuyers. Educate yourself on what’s available in your area (there are probably many). If you’re in the Houston area, I’d be happy to send you a list of some of the programs available here. Once you have an idea of what you’re interested in, you’ll need to find a lender that works with those. Not all lenders work with all programs. Talk to several and ask them what they would recommend for you.

Keep in mind that these programs usually have higher fees and interest rates. But sometimes it’s worth the cost to be able to buy a home and start building equity. And you might be able to refinance to a lower interest rate down the road.

  • Big Downpayment

Maybe you’ve been saving for a while and you have a substantial down payment saved up. That’s fantastic! A down payment of 20% or more can save you a lot of money. For starters, you won’t have to pay for PMI (Private Mortgage Insurance. I’ll talk more about that later). You’ll also get a lower interest rate. And you can probably work with a lender that doesn’t charge any lender fees. So woohoo for you! Great job. Make sure to keep reading so you know what questions to ask when you’re interviewing lenders.

  • Self-employed

If you're self-employed, that can sometimes be tricky. Especially if your business is less than two years old because lenders will usually want your last two years of tax returns. If that’s the case with you, find a lender with alternative income verification options.

  • Reverse Mortgage

Perhaps you’re a senior interested in a reverse mortgage. There are many benefits to a reverse mortgage including upsizing or downsizing while increasing your monthly cash flow. Make sure to find a lender who specializes in that.

Important Questions to Ask

Now that you know the type of lender you need, here are some important questions to ask.

  • What do you estimate my interest rate will be?

The lender won’t be able to tell you exactly, but they can give you an idea. The rate can vary by as much as one percentage point from lender to lender. That may not sound like much, but on a $200,000 house with 10% down, and a 30-year note, that’s a difference of $150 per month, $1800 a year, and almost $30,000 over the life of the loan.

  • What is your PMI rate?

PMI is Private Mortgage Insurance. It’s required if you put down less than 20%. The insurance covers the lender in case they would have to foreclose on the property before you have much equity in it.

The PMI rate can differ by almost one percent between lenders. That can make a big difference in your monthly note.

  • How much are your lender fees?

Lenders will often charge fees for processing the loan. Some of their fees might include an origination charge, an underwriting fee, a processing fee, discount points and more. These fees can quickly add up to thousands of dollars.

There are also lenders who don’t charge any lender fees or low fees and provide the same great service as the ones who charge more. These lenders make their money by selling the loan once it closes. That is a very common practice and could save you a lot of money.

In some circumstances, using a lender that charges higher fees is the best option if they offer a program that can help you buy a home.

  • Is your underwriting in-house or outsourced?

The underwriter is the behind-the-scenes person who is the gate-keeper to your loan approval. If that process is outsourced, it can ruin or significantly delay closing.  It is much better if the lender’s underwriting department is in-house and the processor and underwriter have a good working relationship and can get things done quickly.  

Hopefully, I’ve made clear the importance of interviewing several lenders before deciding on one.

These are some of the biggest questions to ask. There are others, and I’d be happy to send you a more detailed list or to recommend good lenders who specialize in the type of loan program that suits you best.

I hope I've helped you get one step closer to HOME.

I would love to be the realtor you choose to help make your dream come true.

Contact me for a free consultation.