Why You Need a Mortgage Lender When Buying A Home
Every home buyer has different needs and reasons when looking for a property. However, these people have one thing in common, and that is the need for money. With this, they turn to lenders. A mortgage lender can be a firm or a person that loans a specific amount of money to a borrower. The loan comes with the condition that the borrower will repay the amount with interest in a predetermined schedule. In terms of mortgages, the payments are typically made every month with a different interest rate. Choosing the right lender and having a good loan officer can be a powerful combination when closing a mortgage.
Different Types of Mortgage Lenders
There are three main types of mortgage lenders; mortgage banks, retail banks, and credit unions. There are also mortgage brokers who compare mortgage products from a group of lenders and help you find the right one. Before you begin to narrow down the lenders, determine what you are looking for according to your needs.
Mortgage Banks. These kinds of banks exclusively offer home loans. Also, you can find a lot of lenders on the internet that operate as mortgage banks. A loan officer will work for a mortgage bank and receives a bonus or commission from the gross fees of the lender for writing your loan. An online lender usually provides less hand-holding.
Retail Banks. These financial establishments conduct their own underwriting and investigating of your financial situation. Retail banks are often less-stringent with credit requirements and offer much lower fees, particularly the smaller banks. If you want to put all your financial accounts in one place, a bank or credit union is a good choice. The bank will also assign a loan officer to write your loan whom will receive a bonus or commission.
Credit Unions. These are customer-owned and non-profits. It means that they are not beholden or have responsibilities to shareholders. Due to their tax status, they can provide lower fees and more personalized services. On the other hand, these credit unions do not have a lot of branches. Also, you must be a member of their community before you may qualify for a loan. This could be according to their interests, employment, faith, union-based, and many others. With this, it may not be easy to be a member of a credit union. You will also be working with a loan officer when applying for a loan in a credit union.
You may call these mortgage brokers as personal mortgage loan shoppers. They work as a go-between for the home buyer and a mortgage lender. The brokers also help the borrower get the lowest mortgage rates and the best terms. A broker has the ability to help the home buyer obtain the best rates because of their existing relationship with many lenders. This is something that a regular homebuyer is unable to do. Since a mortgage broker normally does all the hard work for the borrower, it makes home loan shopping faster and more convenient.
The broker you use can be a member of a group of mortgage agents or works as an individual agent. A mortgage broker usually charges about a 2% fee from the loan amount for their services. It is either the lender or the borrower will pay this fee at the closing.
Verifying Repayment Ability
A mortgage lender also does the qualification checker before giving out a mortgage to a home buyer. There is a rule that was implemented in 2014 that was specifically designed to help borrowers avoid making a risky loan. The rule puts the lenders responsible for ensuring that a borrower has the capacity to repay the loan with proof of documentation, including assets, income, and job status. The lenders should also confirm that the credit history of the borrower has a good rating. Moreover, they must verify that the ratio of debt-to-income of the person is not higher than 43 percent. After verifying all the necessary qualifications, the mortgage lender may issue a mortgage.
The Importance of Pre-Approval
There is a big difference between getting pre-approved for a home loan and being pre-qualified. Pre-approval means you have penetrated the application process since you have skin in the game. In other words, there is enough proof that you can afford to purchase a house. Pre-approval puts you in a good position to negotiate and make an offer. It is also evidence to the seller and both of your agents that a reputable mortgage lender is willing to provide financial assistance with the home acquisition.
In the housing industry, the moment you make an offer, the home sellers expect that you are in the pre-approval stage. It means you will not lose on a bid because the bank already approved your loan, and it is more likely the other party will accept your offer.
When it comes to pre-qualification, it is only an estimation. It is not that essential unless you want a snapshot of your creditworthiness because you have no idea of where you stand. In contrast, pre-approval is when the mortgage lender digs deeper and informs you how much you can get on a home loan. However, it does not mean that when a lender tells you to take out a specific loan amount, you should. Take into consideration your monthly budget and lifestyle before you decide on a loan amount that you can pay responsibly.
In addition, getting pre-approved will give you an advantage over the other home buyers. This is because it is a sign to the seller and the agent that you are serious about property buying. The pre-approval amount you obtain can give you an idea of a price range, saving you lots of time when shopping around. When you find a house that you like, your pre-approval will enable you to make an offer quickly.
It is best to shop around before committing to a loan. Over the life of a mortgage, there are many subtle differences that could easily add up to the payments. It pays to have a mortgage lender to provide their expert services in helping you secure a loan.