Buying your first home: How to find the right mortgage lender that will have your best interests at heart. Hint: It may not be who your real estate agent suggests.
Q: I recently saw you on the news and I wanted to reach out to ask you a few questions. I wanted to take the plunge and buy my first home or even would love to build a home. What is the most important thing I need to know when contacting a mortgage lender? These real estate agents I speak with always suggest I talk to ” so-in-so” but should I make sure these mortgage lenders work with a big name? I’m not so sure what to look for.
A: Thanks for reaching out.
We don’t think buyers or homeowners looking to refinance shop around enough when it comes to the mortgage. There seems to be this feeling that lenders are similar and if you’ve gotten a quote from one, it’s going to be the same everywhere.
And yet, competition abounds in the mortgage world, and different types of lenders offer different programs with different costs. That’s why we recommend that you should interview (or reach out) to at least 3 or 4 different lenders, including a national online lender, local lender, credit union, and a mortgage broker. They’ll all offer different rates, fees, points, etc. Make sure you notice things like customer service. Lenders that have cheap rates but lousy customer service make for a frustrating home buying experience.
Your real estate agent may also have a few good recommendations and there is no reason that you shouldn’t reach out to those people as well. If you trust your real estate agent to help you buy the most expensive thing to buy in your life, we’d hope you’d trust the agent to also have good recommendations on mortgage lenders and brokers and home inspectors.
If you’re buying a new construction home in a large development, you may need to use the builder’s lender because you won’t want to (and may not be able to) lock in your rate for the six months to a year that it will take to build your new home.
Builders usually pair up with a lender that offers a better (or sometimes merely decent) deal to lock in all the buyers in the development. If the builder obtained construction financing from a lender, that same lender may provide financing to individual buyers. Frequently, the terms offered by that lender may be more advantageous than other lenders.
The reason for this discount is that the construction lender may want to work with the builder to facilitate financing and make it easier for buyers to close on their homes. When the financing is coordinated, the lender will know if the buyer is qualified and will know if the deal will go through. Furthermore, the construction financing lender will have a better grasp of how the development is going and can coordinate the interest rate locks and closing dates to a greater degree than other lenders.
But you’ll still need to make sure you are comfortable with that lender. We’ve heard stories of lenders sharing too much information with the sellers and we’ve heard stories of buyers relying too much on the lender thinking that talking to the lender is like talking to the seller.
If you’re thinking of building your own home and financing the construction, you’ll really need to your homework. In our examples above, you need to make sure you have a good credit history and a great credit score, but lenders will allow you to put down a little money to buy a home. If you decide to build a home, you might need much more cash on hand. First, it’s tough to get a loan to buy a vacant lot and not all lenders will give you construction financing (you’ll either need a construction-to-permanent loan or do a permanent loan after the home is build) so you might need to find a local lender, savings and loan or community bank to help you out.
Finally, I’ll put in a plug for my latest book, 100 Questions Every First-Time Home Buyer Should Ask (4th Ed). It has two big chapters on getting a mortgage, and a total of nearly 500 pages of information that you’ll find helpful if you’re starting to look for a home.