How to Choose Your Real Estate Lender

Because you need quick action when applying for a real estate purchase loan, find a lender you can access easily. A lender’s quick response signifies good service to follow.

Once you know your middle credit score, look for a lender appropriate to your specific needs. When ready to make offers to purchase, apply for credit with lenders. Choose at least three lenders to apply with and do it at the same time. Call all your prospective lenders during the same week. This counts as only one inquiry on your credit report. Credit bureaus expect borrowers to shop for a loan.

The best way to find a good lender is to ask a real estate investor for a referral. Also, escrow officers and real estate agents know lenders who close loans efficiently in a timely manner. Avoid advice from agents or others who receive a kick-back commission for referring you, because you may pay for this referral with added charges to your loan.

Lender’s Checklist

Ask potential lenders about the following requirements and costs according to a price range you think matches your needs. This also helps determine what you need to look for in a property.

1. Qualifications:

Middle credit score

Income

2. Loan costs:

Points

Processing fees

Additional “garbage” fees (underwriting fees, loan documentation preparation fee, filing fees, credit report)

Hidden costs

Prepayment penalty

Interest Rate

PMI (mortgage insurance)

Are loan costs added to loan or prepaid?

Is the seller allowed to pay a percentage of nonrecurring closing costs for the borrower?

What is the maximum allowable seller contribution?

3. Requirements:

Percentage of purchase price required down? Or loan to value ratio?

What about the condition of the property? Do they finance “fixers”?

A Better Way to Find Your Lender

After you work through all the details of the lender’s checklist, you understand better the available possibilities. Now, from a different point of view, work backwards. Instead of asking the lenders what they offer you, tell them what you want and find the lender who best matches your terms. Create your own wish list of your personalized loan needs.

Personalized Borrowers Lender Checklist

Is this purchase an owner-occupied or an investment property?

What percentage do you want to put down?

If you want to sell right away, can you avoid prepayment penalties?

Do you need the loan to finance a fixer? How much of a fixer do you want to tackle?

How flexible are the lender’s appraisers? Do you need a cooperative appraiser?

Do you care about “garbage fees” and need costs to be added to the loan?

Do you want to pay PMI, or a first and a second, or neither?

Do you want the seller to contribute to your closing costs?

How much do you want the seller to contribute?

How many points do you agree to pay up front or add to the loan?

Are super low payments available?

Make your own checklist according to your abilities and find the lender who comes closest to your needs. Remember, a good mortgage broker wants your business and works hard to find the right loan out of thousands to best suit your requirements. However, asking a lender for impossible demands wastes your time and theirs.

What is a Predatory Lender

Several months ago, the 3,000-member California Association of Mortgage Brokers (CAMB) created the first real definition to describe the abusive lending practices of predatory lenders. According to the CAMB, predatory lending was described as “placing consumers in loan products with significantly worse terms and/or higher costs than loans offered to similarly qualified consumers in the region for the primary purpose of enriching the originator and with little or no regard for the costs to the consumer.”

Most mortgage brokers provide good service to their clients, yet there are a few who use unethical practices. Those brokers, called “predatory lenders” by the CAMB, not only over-charge consumers, but they also get paid in other hidden ways.

For instance, avoid lenders who charge more than the usual three percent fees for a conventional loan or four percent fees for a government-sponsored loan. Even non-prime lenders can’t justify excessive fees.

Also watch for hidden loan costs, such as the Yield-Spread Premium. This term refers to a rebate that’s given to brokers when they place a borrower at an interest rate higher than the rate for which they qualify. Refuse to pay yield-spread premiums and unwarranted fees, and avoid brokers who include these charges in their loans.

Besides charging high points and fees, predatory lending practices may also include such things as “packing” credit insurance on to a loan, making mortgage loans to homeowners who don’t have the income to repay them, and repeatedly refinancing loans.

When it comes to obtaining a real estate loan, it’s your responsibility to become a knowledgeable consumer, which means you’ll need to keep asking questions of your lender. If you aren’t able to get clear, easily understandable answers to your questions, it’s possible that you may be dealing with a predatory lender.