Shopping for a lender
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.
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.
Comments
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.
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.
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).
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
That's a valid point about shopping around (rates and fees should be close), but I think you're wrong about brokers not wanting to bother. I got quick responses from all three lenders, with the two brokers wanting to meet face to face (their request, not mine). This loan will be pretty easy to close (the hardest part will be finding a property at the right price).
I plan to do exactly what you suggested with using the direct lender GFE to get better pricing. Interacting with the lenders/brokers also gives an indication of how they're going to perform when it's time to close my loan.
As to the 'crap load of pointless' questions, it's their job to answer things like:
- What's your rate lock policy? Do you always provide rate lock confirmations in writing?
- Do you guarantee lender-based fees from the GFE?
- What's your average time to close a loan and do you use in-house or outsourced processing and underwriting?
Frankly, I look at this just like buying a car. Prices should be similar from lot to lot, but they can vary $1k+ when you start to shop around. Just letting the sales guy know that you've been shopping around typically gets you a better deal. Yes, you're typed as the uptight guy who's not going to the sales guy's commission, but someone's going to get the business.
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.
Let me address your questions: Always ask for rate lock in writing. If it's a broker, they're at the mercy of the lender they are working with...but just get something in writing. Try not to lock with two lenders at the same time, I don't think it's quite ethical. GFE is an estimate, feel free to list out the fees that they are charging you here, and I can tell you if they're reasonable or not. If you're not sure about your broker, be prepare to walk away at signing if the term changes from your GFE. I am not in the business anymore. Typically the processing time takes about 21 to 30 days. However, if you were able to find a lender you trust and they have selected couple lenders for you, you can submit your loan with address as TBD and get an actual approval. With this approval, you can clear all the conditions before you actually have a house. Once you find a house you like, submit appraisal and the whole process would only take about 1-2 weeks from that point on. However, I am not sure if I would actually recommend this route, since you don't have a broker you like just yet. I would simply expect 21-30 days for closing.
I remember I lost a deal one week from closing because the guy who asked me hours worth of questions before and after business hour, decided that saving another $300 bucks was worth it and went with someone else. The deal was like yours, vanilla and everything straight forward. I was already at basically the rock bottom pricing, which was less than a point front and back, but the other broker had ING, which I didn't know back then. Anyhow, if I was to actually do the deal at ING rate, I would have walked away with...$200.
Shop around is great if you're on the other side, but nowadays most people do not have any loyalty and just swing whichever way they can save little bit of money.
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.
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.
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?
Again I'll stress the point that "vanilla" loan requires very little service and therefore either you are offering some sort of friendship or you're just a funny guy. There's no point to argue here, a vanilla loan is not worth fighting for. Vanilla loans belong to lenders, brokers has little incentive to fight for them, and it's not about the level of service, there is no service to offer for a vanilla loan.
Quote the rate and pull credit.
Order appraisal, approved the loan, sign docs.
Fund.
I'll tell you a funny joke in between the 5 minute process and hope you won't shop for $300 dollars because rate dropped since you locked.
Those are good questions. Yes, you're typically going to attach the pre-approval letter to your offer so the listing agent and sellers will see it.
I've heard a couple of theories on this. In your example, some people might call up their lender and have them re-draft the letter for the offer price of $350k. That way, sellers might be convinced that your offer is the maximum you're willing or able to make.
However, I think any good listing agent would see right through that strategy if the offer is exactly the same as your pre-qual and there's a fresh date on the letter. Also, if they wanted to counter at $360k and there are multiple offers, you might lose the deal. Of course, if you're firm on your true maximum that doesn't matter.
CU/Bank:
-Upfront fee (not always)
-Set rate once it is locked
-One lender option
Broker:
-No upfront fee
-Can switch lenders for re-lock
-Several lender option
Being a broker suffers from double edge sword. One of your selling point is that you can get a better rate if market approves. However, client could potentially hold you to that! Broker then have to deal with resubmitting loan, and if a broker locks many loans without closing, they are also running the risk of losing that particular lender.
I am sure most brokers always try their best to offer the best service, but like I said, clients don't care for a vanilla loan. Rate changes daily, unless a broker is willing to lock several times and resubmit loans to several lenders, they are running the risk of losing a client. For what? Very minimal fees because once again, IT IS VANILLA.
In my case the CU was about $1,000 cheaper at first pricing. I bet the brokers will give a little on pricing, and let's say I do some negotiation to get the broker to cut his fee during the pre-approval process. When I identify a property and go back to lock the rate, won't I need to do this all over again?
I used the car shopping example earlier, but the way the loan business works it's almost like I'm buying a car three times:
1.) Shop lenders, get best deal you can find at pre-approval. Play one LO/broker against the next to get the best pricing.
2.) At rate lock shop the loans again to make sure I'm still getting the best deal.
3.) At (or just before) loan closing make sure broker didn't try to pull a fast one on me.
It seems like a lot of trouble for little benefit (to either of us). Right now I'm leaning towards the CU just because I don't have to worry about getting screwed.
I am certain that broker can beat CU pricing at the same margin of profit, but then again, a broker probably wouldn't accept the margin that the CU is willing to.
I did, however, want to see what, if any, kind of financing DH and i could qualify for, especially in the current economy. I too applied for a loan at a very large local credit union at which my husband and I are both members. We applied for a ZERO-DOWN (ha ha) 30-year fixed for 300k. Though married, we have different last names so it was necessary for the CU to pull separate credit reports. As it turned out, my credit score was quite poor, while my husband's was excellent, so if they removed me from equation they were able to do a pre=approval for my husband for 300k, 30 year fixed for $500 down at 6.25% rate. This was 2 weeks ago. We have not locked in, although we feel it was a good offer. We still want to see what happens with the market and economy. I think prices are going to drop much more and I'm fine with our current rental. Also, I think that maybe we could stand a bit of debt reduction (it's not too much, but still...) and even gasp maybe try to scrape some kind of down payment together. In the meantime, I will work on cleaning up my credit.
But I read this thread and all the others with great interest and if any body has any words of wisdom to send my way I would appreciate it!
This actually has nothing to do with your last names. For married folks, lenders look at both spouse's credit, and almost always use the lower credit score to determine the rate.
Because they removed you from the loan application (assuming you work), you collectively should be able to easily afford the payment. The only disadvantage of going zero down, is you're going to pay PMI (typically a few hundred $ a month). Also, if you're not on the loan, your credit record will not improve with on-time mortgage payments.
We met with the local broker/correspondent and liked what we heard. We were very upfront that we're shopping around and were comparing him to a credit union. He didn't badmouth the CU and pointed out his advantages: in house underwriting, processing, and personal availability if something goes a little sideways. He suggested we consider that and get in touch again when we've identified a property to see if he can get close on pricing. Interestingly, he urged us to be very cautious because prices are falling and will probably continue to do so for at least the next two years.
After sitting on hold for another 30 minutes with the CU, I learned that our file is still in manual underwriting (which typically takes 5 business days). Given the vanilla nature of our loan (that was for Ubersalad) I'm surprised it's taking this long.
As far as credit goes, I have one of those free 90-day subscriptions to our credit score. We were alerted to three inquiries, but neither my wife or my scores changed at all. I thought that was interesting.
Working with an established broker allows for "anticipation" of potential bumps in the road and can navigate you through them BEFORE they foul up your suspension (loan). Obtaining loans through a large CU like BECU is fairly sterile in that you have no real "conductor" in the orchestra (traditional loan officer).
There is nothing more frustrating (especially for escrow) than being on hold for a hour in crunch time trying to talk to someone in underwriting and funding at a large institution like BECU.
That being said, you can have just a many potential problems creep up with Wells Fargo, especially WAMU, and other large banks.
Good luck with the housing search. I see more pricing pressure on the horizon, so patience will pay off.
Correspondent lenders are paid just like LO's who work at mortgage banks and do not have to show you what they're making on the "back end" (often referred to as SRP). Unlike LO's who work for mortgage brokers and have to disclose what they're paid on the back end (YSP).
That's baloney. It should have been one credit report when you're married regardless of what your last names are. As far as rates go, with risk based pricing, the lowest of the two mid scores will be used to price a mortgage interest rate for a conforming loan.
Good luck!