How to pick a lender

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Finding a good lender is one of the most important steps in preparing to buy a home.  This has always been important but perhaps even more so today then at any time in recent memory.

Lets step back in time for a moment. A couple of years ago it was pretty easy to get a loan. You didn’t need great credit, you could tell them how much you made and not have to prove it, you didn’t even have to have any money for closing costs or the down payment. In other words there wasn’t a big hurdle to get over in order to get a loan to buy a home.

Fast forward to today. Many of those that bought a home couldn’t really afford it.  If money gets a bit tight, they have no cushion to fall back on.  And, some less then ethical loan companies put unqualified buyers into loans with small teaser rates to keep the down payment down.  2 to 3 years later, these loans fully amortize and the payment jumps from less then $2000 a month to over $4500 or more.  Now you have buyers that can’t afford their home and because they bought it with little or no money down, there isn’t enough equity in the home to allow them to sell it without being upside down in the loan.

Lenders have had their money supply tightened and the bond market has been hit hard over foreclosures and short sales. In short, bad lending practices of the past have created a backlash of tighter restrictions, higher credit score requirements and higher interest rates.

So what does this mean to buyers and sellers?  First, let’s look at this from a seller’s perspective. If they get an offer on their home and their agent is any good at all, they are going to not just review the offer terms but they are also going to look hard at the lender and the pre-approval letter. They may call your lender to determine if you have actually been approved by a lender’s underwriter based on documents you have provided or if you have just been approved based on what you have verbally told the lender.  In short, a seller wants to know that you aren’t going to have problems with your loan down the road.

Now, from a buyer’s perspective, just imagine how you would feel if after months of looking you have found that perfect home, so have 2 other buyers and you are now faced with presenting you offer against others. You may decide to offer more money, and shorten your contingency period (both common tools to use in multiple offer situations) only later to find that they took less money from another buyer because they had more confidence in the other buyers loan.

It happens more then you think. In this market and in most  markets, do not chose a no face on-line lender to work with, it is a guaranteed disaster.

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