How do I shop for a loan?
In order to meet the customary 30-day financing contingency deadline, a lender must be selected and a loan application completed within several days after the purchase contract is accepted.
First you need to know where to look for a loan. Most buyers get home loans from savings and loans, mortgage banks or commercial banks. These are referred to as lenders. Many buyers use the services of a mortgage broker who acts as an intermediary between the borrower and the lender.
Ask friends and associates who bought a home or refinanced recently for a recommendation if they were satisfied with the service they received. Your real estate agent can provide you with lender rate sheets and can make recommendations.
After you've generated a list of possible money sources, call a representative of each and ask the following questions: (If you find this list daunting, or if you're short on time, you may want to use a mortgage broker to shop for a loan for you.)
* What types of home loan programs do you offer? Not all lenders provide all loan programs. For example, if you want an adjustable-rate mortgage with an interest rate that's fixed for more than a year, your financing sources will be limited.
* What are your current interest rates? For ARMs, you'll also want to know how long the initial interest rate will be in effect; the fully indexed rate; the margin; the index; the interest rate and monthly payment adjustment schedule; the interest rate caps (periodic and lifetime); if negative amortization is possible; and if the loan is convertible to a fixed rate at some point.
* What are your loan fees and when are they paid?
* What are your qualifying ratios? Briefly review your financial situation with each lender to make sure there's a good chance you'll be approved for a loan before you apply.
* Will Private Mortgage Insurance (PMI) or an impound account (for property taxes and insurance) be required? What will this cost?
* Is it possible to lock in an interest rate? When can a rate be locked in? What will it cost?
* How long will it take to approve a loan?
* Does loan approval and processing occur locally? Processing a loan long distance can result in frustrating delays.
* Will you give me a written loan commitment? Some lenders only give verbal approvals.
* Do your loans have prepayment penalties?
* Do you require "termite" work to be completed by closing?
* If the sellers have agreed to pay for some or all of your nonrecurring closing costs, ask if the lender will allow this.
THE CLOSING: Buyers of homes in new developments are wise to use a lender who's experienced in financing new homes. You may get the best service by going with a lender who has processed loans for other buyers who have purchased homes in the same development.
Dian Hymer's column is syndicated through Inman News Features. Send questions and comments in care of Inman News Features, 5335 College Ave., No. 25, Oakland, Calif. 94618.