Looking for A Mortgage Lender?

You’re thinking about buying a home, but you can’t pay all cash. Gee, join the least-exclusive club we know! Now you have to get a loan secured by whatever home you want to buy, a loan we call a mortgage.

You Lose!

“Oh, I’ll just click on one of those ubiquitous pop-up Internet ads, and lenders will come begging for my business!”  Please, please, don’t! Whether it’s the one where lenders advertise their “best rates,” or the one where you ask for four lender quotes (and get hundreds of them calling you day and night), they won’t be any good at this point. What you need to know first is what loans are available to you, and how much house you can afford based upon those loans. You want someone who will tell you what’s going on in the loan market right now.

You are not ready to sign up for any loan yet. Instead, you are trying to find a loan officer who will be there when you are ready. Will they guide you through the process, and explain how they get from A to B? Taking your income as a starting point, they would subtract from that your current monthly obligations, to arrive at a reasonable monthly budget for housing, using current interest rates, tax and insurance costs. As for what kind of mortgages, they should start with a fully amortized 30-year fixed-rate mortgage with no more than one point of combined origination and/or discount fees. (A “point” is 1 percent of the mortgage amount.) They should then discuss alternative loan types, such as the 5/1 adjustable (see below), but the main purpose here is to ensure you will not be getting in over your head.

You might like the numbers the first lender gives you, but don’t stop looking. You want to have this same discussion with at least three different loan officers. You need to confirm that what you’re hearing is the truth, both in terms of what you can afford and the likelihood that the loan terms are valid. You see, loan officers in general have an incentive to tell you what you want to hear, and despite the existence of a “Good Faith Estimate” and/or “Truth in Lending” documents, they don’t have to deliver what they promise unless and until they provide a loan quote guarantee or “lock.”

What kinds of loans are out there that are worth considering? In the current interest rate environment, where rates are historically low, forget negative amortization (where you pay less interest than the actual loan rate, and the underpaid interest is then added to the loan balance). And forget “teaser” loans, where the first couple of years is at an artificially low rate, like 1.25%. Both of these are sure recipes for disaster – they were the cause of many of the foreclosures we are going through right now.

All the rest have their advantages and disadvantages. The fixed rate loan is almost always at a higher rate. In effect, it’s 30 years of insurance against rate changes. Yet most people either move or refinance in 5 years or less, so why would they pay for a 30-year guarantee? The 5/1 (or 3/1, 7/1, or 10/1) ARM – where the rate is fixed for the first several years and adjusts annually after that – is usually a lower rate.

And why spend money “buying down” your interest rate by paying discount points, if you’re not likely to keep it long enough to recover the money? You might cut your monthly interest charge, but it takes 6-8 years to break even.

Once you have believable info on how much you can afford, then you can start looking at properties. Stay in touch with the lenders you believe would be most reliable. You’ll notice I said “lenders” – keep reading.

You might want to strongly consider having a backup loan. When you’ve decided who your first choice lender will be, ask the next best lender if they will be your backup. They might, if they don’t think the first lender can deliver. If they’re right, you’ll be signing their paperwork at the end. You will need to do everything necessary so that both loans are ready to go. The backup loan is useless to you if it’s not ready to go at the same time as the main one. You may have to pay for an extra appraisal, but it’s $300 or so well spent.

If you decide not to have a backup loan, you will have to sign whatever papers your one lender gives you, whether they deliver on their promises or not – you won’t have a choice unless you decide to renege on your purchase contract, which can be extremely expensive, as you can imagine.

Having said all that, I have only been involved in one settlement where the buyer had a backup loan waiting in case the first one fell through (it didn’t). Most of my buyer clients have used mortgage officers I knew would deliver. I have seen a couple of situations where the settlement (my sellers) was delayed because the buyers’ lender was incompetent or untruthful, and it’s not a pleasant place to be for anyone.

UPDATE: Here is a great post about What To Look For In A Mortgage Lender

Stupid Home Buyer Tricks

I’ve been a real estate agent in Springfield, Kingstowne, and Fairfax for several years, and for the most part I have found that Northern Virginia buyers are pretty bright. But I have seen some prospective home buyers do things that make me wonder what they were thinking (or smoking, if you get my drift).

For instance, wouldn’t you think it pretty important that you understand how much you are able to afford before you start looking for a home? Maybe you would want to consult with a good lender (or two?) to help determine that you can qualify for a mortgage, and for how much?

And then there are so many different types of real estate loans – 15-year, 30-year, even 40-year fixed rate – FHA guaranteed – VA no money down – local down payment assistance – 3, 5, 7 or 10-year fixed/adjustable – wouldn’t it be a good idea to understand your mortgage choices? A competent real estate lender will recommend the best financial product for your needs. I have seen way too many of those quickie print-it-yourself “You’re Prequalified!” letters from Internet mortgage “brokers” who promise you whatever they think it will take to get your money. Please, speak with a lender you trust, and ensure that you have been fully approved for your mortgage and that you understand it. If you don’t know a lender, ask your agent for referrals to some good ones.

What?! You don’t want to work with a real estate agent? How many homes have you bought/sold/negotiated lately? It’s one thing to be bright, but entirely another to think you know everything about everything. Oh, you don’t want to pay a commission? Perhaps you didn’t know that as a home buyer, you ordinarily will not pay any commission. The seller pays the commission to their agent, and they share that commission with the buyers’ agent. You can choose to be “represented” or “assisted” by the seller’s agent, but that’s the same as not being represented at all. Get your own agent to make sure your interests are protected! We’ll wait . . .

So now you (and your agent – hint, hint) are out looking at homes. You’re a people person, so naturally you strike up a conversation with the sellers or their 

agent, or maybe their neighbors. Smile, but shut up, already! Everything you say, especially to a well-trained ear, gives them some information you may think is innocuous, but might undercut your negotiations later. You talk to your real estate agent, and let your agent get the answers. After the contract is ratifiedyou can jabber all you like. We encourage it.

Ooh, look – here’s the most expensive house on the block! Let’s get this one, honey! Who cares about later resale value? Most of the time, the highest priced home in the neighborhood will appreciate more slowly than others. Get the pool, the big sunroom, or other costly amenity if you really want it, but don’t expect to get your investment back when you sell unless that “extra” is common in the neighborhood.

Neighborhood? What about the neighborhood? Looked OK when you wrote the offer on Sunday afternoon! Of course, that’s when the 12 guys living in the frat house across the street were sleeping. Take a drive around the neighborhood at different times of day and evening. How’s the commute to your job?

Contract, shmontract, they’re all the same. It’s all about the bottom line, right? Well, no. Designing and presenting a persuasive offer while keeping your options open is a skill born of experience and research. Formulate the offer with your real estate agent. Present yourself as a strong and committed buyer by being approved by a lender and having a competent real estate agent put the offer together with you.

You didn’t request a home inspection? Nah, your uncle is a plumber, so you don’t need no steenkin’ inspection. Every home should be inspected by a qualified home inspector. If you are buying in Virginia, a termite inspection is required. And, if you are considering a home with a septic system – as you might find in Clifton, Fairfax Station or other western and southern parts of Fairfax County – insist on a county inspection of the system.

OK – we’re all set. Settlement in two weeks. Hey, let’s buy a new car for our new garage! And while we’re at it, darling, go right ahead and quit your job so you’ll have time to pack your stuff and move! I have had buyers do something like this – well, not quite that bad – in the weeks prior to settlement, only to find that their chosen lender will recheck employment and credit just two days before the expected settlement date. No verification, no loan. Oops!

Buying a home in Springfield, Kingstowne, Fairfax or anywhere else can be stressful and there are many pitfalls. Let yourself be guided by a real estate professional you trust and respect, who has YOUR best interests at heart.

Yup – like me.

What is “preapproval” and why do I need it?

Not many people have the cash to buy a home. If you do, you already know you don’t need a mortgage preapproval. But for the rest of us cash-poor mortals, mortgage preapproval (before you begin your house hunting) lets you know exactly how much you are qualified to borrow, and thus what you can spend on a home. What is the point of looking for a home until you know how much home you can afford?

Furthermore, when you decide on a home, the seller will want to know that you are able to pay what you are offering before he will consider your offer. Thus when you make an offer, you are expected to provide a letter from a reputable lender saying exactly that.



The lender wants to understand your personal financial picture, including savings, credit history and income. To help you get a quick idea of what you can afford – which they generally call a prequalification – they will usually run a credit check, and accept your word on your income and assets.

The next step involves having you provide bank statements and such to verify assets, and paystubs or other income verification documents. When they have seen these, they can provide you with a preapproval letter referencing your ability to borrow a specific amount. What is nice about all of this is that most good lenders don’t charge you anything for these services, nor do they require that you use them for your mortgage.

The keys to getting a solid preapproval are:

• establish a consistent record of paying your bills on time, to keep your credit rating up;
• aim for having enough savings to cover your down payment, closing costs if necessary (figure 2-3% of the sales price but often the seller will contribute this), and two month’s expenses in case of emergency. While you wouldn’t want to tap retirement savings for your down payment or other house purchase costs, they do represent reserves that help reassure the lender about your financial stability, so be sure to include these in your assets;

• a stable employment history is important, but if you’ve recently completed college, or were in the military, you have good reason to have less work history. If you are a freelancer or do contract work, the lender will look for consistency in income over the last two years, so hang on to those tax returns.