Finding a lender is easy! Your realtor has a name, your lawyer has a name, even your uncle Yanki has a name. Having a referral from someone you trust is certainly a smart way to seek professional services. However, your interests may not always be the same as those of the person making the referral. The realtor wants the deal to close and may not really care if you’re getting the best terms. Your lawyer may have a long-standing relationship with the lender, who simply may not be offering the best pricing and services. Uncle Yanki may have had one positive experience for his particular situation while yours could be significantly different or perhaps his referral is a buddy from the Kiddush club. Considering this is your purchase, maybe you should work a little harder to find the right person.
This will likely be the largest investment you will make in your life at least until you purchase your next home. The mortgage you obtain is likewise the largest debt obligation you will have. It makes sense to do your due diligence before taking on such a significant obligation. It’s true that the most important part of your decision should be to find a lender who is able to complete your transaction, but you also want to make sure you’re obtaining the best terms.
Qualify – The ability to get your mortgage approved is certainly the most important factor to consider in choosing a lender. If you are buying a condo, ask the lender if his bank has approved the project. If you must do renovations, ask if he can offer a renovation loan. If your credit scores are low, can the bank accommodate you? If you are recently self-employed or retired, does the bank have programs that will provide approval. Make sure you have a definite answer early in the process. The worst scenario would be a lender who insists they can do your loan and then declines you in the eleventh hour.
Rates—when comparing interest rates one helpful question would be what is the APR. This figure includes estimated fees in addition to the rate. As an example, the bank offering the low rate of 3.75% with two points may seem a better product than 4% with zero points. Assuming no other fees the APR on the 3.75% loan would be 4.28%, while the 4% product would have an APR of 4%. Which is the better product? That depends on your personal preference. Do you want lower monthly payments or an immediate savings? Will you remain in the loan for many years and reap the benefit of the lower rate for a longer period of time?
As you can see, it would be a mistake to just go by the APR. Be sure to compare apples to apples when getting pricing and don’t look at the APR alone. Ask for a list of all costs to get a clear picture. Costs should include points, bank fees, appraisal, title and other miscellaneous costs. You should also make sure you are comparing the same factors in the loan. Credit score, loan to value (ltv) and rate lock period must be the same to get an accurate comparison. As your credit score increases, the ltv decreases and the lock period shortens, the rate generally becomes more attractive.
Promotions—Be sure to ask about promotional discounts. Most large banks offer discounts based on either existing relationships, the possibility for future relationships, establishing an automatic payment of the mortgage from your checking account or even just mentioning ads that you have seen that provide discounted rates (e.g., Citibank has a standard discount if you mentioned you saw the ad on Citimortgage.com or on Zillow). Considering the significance of the investment you’re making, it’s wise to spend a little extra time and diligence. You may be surprised to find that, with the promotions, large banks often offer the best terms.
Negotiate—Any of you who have shopped in the shuk in Jerusalem know that you never agree to the first price offered to you. Likewise, there may be some leeway when speaking with the lender. Depending on the various discounts already offered, as mentioned above, there may be room to get slightly better pricing. Don’t be afraid to ask. You might save a few thousand dollars in closing costs or even get a slightly better rate. The worst that will happen is the bank will say they already did their best.
Banks view mortgages as a gateway financial product, leading to the opportunity for the bank to establish a lasting and profitable relationship with the borrower. Contrary to a typical mortgage bank, the commercial or savings bank sees this transaction as just one in many. This also creates a different urgency to the bank because they are working with a long-term customer rather than a one-time transaction.
So how should you choose a lender?
Get a name from your realtor, your lawyer and even Uncle Yanki, but also call the bank you deal with and perhaps some other local institutions who would like your banking business. In return for the chance to do future business with you, they may offer better terms. Get the best rate and then ask the person with whom you feel most comfortable if they will match it. You’ll be making the monthly payment and nobody will care about the best terms as much as you will.
David Siegel is a Home Lending Officer with Citibank in its Englewood office. Siegel specializes in purchase loans and can be reached at [email protected] or 201-419-1330. NMLS# 277243. If you are a first-time homebuyer, come learn more at a special dinner seminar sponsored by Citibank on June 30, at a local restaurant. No cost, reservations required.
By David Siegel