Shopping for a lender

[laxtosnoco]

I'm currently in the process for getting pre-approved for a mortgage. You see a lot of advice from lenders and brokers about how to shop for loans, but I thought I'd share how it actually works in real life. I'll plan to write a couple of posts in this thread explaining how things work for us.

My wife and I are not in a hurry to buy, but we'd like to start looking at some properties over the summer. To do so, we think we'll need a pre-approval from a lender to get an agent to unlock doors for us. Now, I suspect we're not typical buyers, but I bet we're in the same boat as many SB readers: dual income, excellent credit, 20% down, and looking for a vanilla conforming 30 year fixed loan. We're targeting Snohomish County (particularly Everett), but I suspect our experience will be similar to anyone shopping for a conforming loan in the area.

Before talking to a lender we did some pre-work. We pulled our credit scores and decided on a loan amount. We could qualify for more, but rather than ask a lender what we qualified for, we wanted to tell the lender how much we wanted. In our case, we're shopping $250k loans (total hypothetical purchase price of $312.5k).

We started by trying to identify lender/broker prospects, which was trickier than I thought it would be. Initially I tried to rely on referrals from friends and acquaintances, because a number of people I know have purchased properties or refinanced over the last couple of months. Unfortunately, when I started to ask people questions about their loans, they didn't really put me at ease. Most people didn't shop around much, didn't know whether they got conforming or something else, and weren't even able to explain why they chose a particular broker. Without being so forward as to ask for their GFE's or HUD-1's, the referrals weren't particularly useful other than to learn 'so-and-so was a really nice guy.'

So, we decided to try three options:
A.) A large credit union that appears to offer transparent pricing and rates.
B.) An up front mortgage broker who claims to charge a flat lending fee, with no YSP or hidden costs.
C.) A local broker who also closes loans as a correspondent. I did some cyberstalking online after getting a couple of quotes through Zillow. This fellow seemed like the most reputable and knowledgeable.

Today I submitted three loan applications. I sent the application cold to the credit union, and let the two other brokers know to expect the loan application (so hopefully we wouldn't get handed off to someone else at the companies.)

Next, I'll share how comparing the loan options goes. Of course, I encourage suggestions from the peanut gallery about my approach.

[biliruben]

Sounds reasonable. Why didn't you also try a bank? I did a similar thing with our first house, though it was two brokers and a bank.

The key also is to make sure all the fees and points are comparable to get an apples-to-apples comparison, which is harder than it sounds.

It's important to find someone you trust, because you don't want to have to walk away at closing, if the one with the lowest fees is a shyster and slips in something nasty at the last minute.

[laxtosnoco]

One of the referrals I checked into was a bank LO (Wells) and I also looked into my bank (Wamu) . I really wasn't comfortable with either because the Wells LO didn't have much experience and for lack of a better word, seemed too 'slick.' I checked out one of Wamu's offices near where I live, but I didn't like the idea of landing in the lap of whichever LO was pulling desk duty at the office when I happened by. I'm also not 100% confident that they'd be the most stable with the way they've been shaking up their home loan centers.

[laxtosnoco]

So, I got some relatively quick responses from the lenders.

The credit union (A) immediately produced a truth in lending (TILA) disclosure and GFE. I didn't get an immediate approval though; the system requested that I send in supporting documentation (W2's + recent paystubs). I was a little surprised not to get an immediate approval given our very low projected D/I ratio (<20%) and our excellent credit. If we don't get an automatic pre-approval, I'm not sure who would, but the website made it look like we were going through some kind of automated underwriting system that dumped us into a manual approval bucket. The disclosures did immediately pop up, which included a summary credit report for both my wife and I with all of our credit scores.

The upfront broker (B) took a little longer to get back. I think there was a glitch in their loan applicaton, because he asked us to resubmit our declarations page. Even though I asked that he price the loan at par, he priced it with .47 rebate points (resulting in ~$1,000 in rebate and a higher rate). I sent him an e-mail asking to see if he could get it back to par for comparison purposes.

The local broker/correspondent (C) got back immediately with a pre-approval letter. I was surprised that he simply wrote us a pre-approval letter, e-mailed it to me, and suggested we meet in person to answer any of our questions. I sent him an e-mail asking for a GFE though and he got back in < 1hr. We're set to meet later this week.

I'm now going to sharpen my pencil and review the GFEs.

[mukoh]

All three of these L/Os are going to run your credit report in one day?

[laxtosnoco]

Yup. As I understand it, the FICO scoring algorithms consider shopping multiple loans of the same type in a 2 week window as one inquiry. So even though I'll have three inquiries on my credit report, the request will only count against me as if credit was pulled once. I expect my scores will drop 3-5 points from the inquiries.

[Ubersalad]

Good credit, 20% down, conforming loan size, 30 year vanilla?

Shop around for what? Most brokers probably won't even bother with you. Wasting time for few hundred bucks while answering crap load of pointless questions.

Your loan is very simple, unless you're not disclosing all the information. Personally I would take the following steps:
1. Walk into BoA/Wells Fargo/WAMU and get a GFE.
2. Fax GFE to a broker and ask for a lower rate and get another GFE.
3. Fax that GFE to ANOTHER broker and ask for lower rate again.

That's about as low as you get and no more than .125% higher than the cheapest guy out there. Your loan is boring, move on.

If you have questions, google it, or I can answer it here for you. As far as credit inquiry hits, worst case scenario is 10% (last I check) and I believe mortgage inquiry within 30 day count as one inquiry (my memory has also escaped me on this one).

[JimN]

One of my colleagues at work was very happy with Lendingtree. He also knew exactly the type of loan/terms he wanted. After getting the online quotes, he went to a local broker who couldn't match the terms. He said everything went smoothly.

I aslo just read about mortgagemarvel.com in the June issue of Money magazine. This looks appealing because unlike lending tree, it simply gets hundreds of quotes from lenders without steering you to a particular broker.

Here's the article link:
http://money.cnn.com/2008/05/02/real_es ... 2008051309

[laxtosnoco]

[S-Crow]

Lax,

Good luck with the search this summer. Brokers should be very eager to obtain your business. Nothing boring about your situation at all. Lots of former brokers out there doing other things for a job. Lots.

Take my word for it, sterling credit and purchase power reduces lots of DRAMA brokers have to go through and what escrow has to put up with to close a transaction.

Consider yourself as the conductor in your real estate orchestra, because you are.

[Ubersalad]

[Ubersalad]

[laxtosnoco]

Ubersalad, just to clarify, those questions weren't for you, they are examples of the questions I'll ask the broker prospects. For me, the pre-approval process is a way to see if the broker knows what he's doing and to get comfortable with him.

My purpose in this post was to illustrate how the pre-approval process works in real life. You'll see a lot of advice online, but I thought I'd show how it works for an average SB reader and to highlight any challenges I run into.

Anyway, for those interested I compared the GFE's. First, I threw out all of the prepaids (taxes and insurance) and non-lender items (title & escrow). Here's what I found:

Credit Union: Same origination fee as broker, but priced with a discount, which lowers the closing costs. Interestingly, the GFE doesn't include an appraisal fee. The only other notable difference is that you pay some non-recoverable fees at rate lock.

Broker: About $1,000 higher on origination and processing. He quoted the same rate and PITI as the CU, but with no rebate/discount. He was also about $125 higher in miscellaneous fees (doc prep, courier services, etc.)

Upfront broker: hard to compare. He quoted the rate .125 higher than the others, but with a significant rebate (~.50 points or $1000+ in rebate). That makes it really hard to compare to the other two. I asked him to run the quote at par, but he hasn't gotten back yet with a quote (and now it's a different day so rates have changed). I'm not sure what I'm going to do with this broker.

The only other fact to note is that I still haven't gotten a greenlight for pre-approval from the Credit Union. I spent 25 minutes on hold this afternoon to see what was going on, but had to give up.

[S-Crow]

I couldn't blame anyone for moving their business if there is a difference of "only" $300. Doesn't matter if it is shopping our escrow office for fees or a Loan Officer's GFE or shopping for a car.

The difference between the way I operate our small business and others is that I don't belittle someone's hard earned money, whether it is $10 or $100,000. So, if someone feels they can achieve a better price with no difference in experience and service, I applaud their shopping--- whether for a loan, escrow, title or other service or product.

There is no better place to be than in escrow to observe how shopping loans can save a borrower hundreds or thousands of dollars. Heck, even brokering to a specific lender can add $1500 +,- in fees (doc prep, admin fee, funding fee, underwriting fee and so on).

Ubersalad states: "There is very little margin for a vanilla loan, and that's the truth."

That may be the case, but your margin and my margin is irrelevant to a consumer. It may matter to you when you were a loan officer, but what matters to borrowers are how fat or slim their wallets are after transacting with you. If they can get a good deal in their eyes and good service, then they are better off for it.

If people are "commission" centered, consumers can smoke you out anyday. If people in our industry are consumer driven by discussing matters in a relevant, meaningful way and are being a "resource," then consumers likely will continue to work with you even if you are slightly higher in fees than your peers.

[Cougar]

Lax,
This is a great post and sheds some useful insight on shopping for a lender. Getting pre-approved for a mortgage gives a buyer confidence in dealing with an agent and seller. Question, say you get approved for 400K and find a house for 350K and want to submit an offer for 330K. Does a pre-qual letter get included or a pre-approval in the offer? Does the approval amount stay between lender and lendee? Do you share it with your agent? What next?