Select a Mortgage Lender that Provides a Broad Variety of Loan Products, Fast Processing, and Competitive Fees

When selecting a lender, it is advisable to answer the following questions:

1. Does the lender offer a broad variety of loan products?

2. Does the lender consistently offer fast processing and timely loan commitments?

3. Are the lender’s fees competitive and fair?

If you are able to answer to all three questions “Yes”, you are probably in good hands.

1. Choose a Lender that offers a broad variety of loan products.

All borrowers do not all have the same qualifications.  This is the reason that a variety of different programs have been designed to serve their specific needs.

When selecting a lender, your goal is to choose one with the ability to place you in the best program available to a person with your specific qualifications. People often qualify for more than one program. If you choose a lender with a limited number of loan products, you may not end up in the best program available to you.

CHAFA?

For example, Connecticut’ s Housing Finance Authority (“CHAFA”) loan program, is a subsidized loan program specially designed to provide fixed rate loans, carrying interest rates below comparable market rates, to first time homebuyers with low to moderate incomes who are purchasing moderately priced homes.

If you qualify for CHAFA, but choose a lender who does not offer the product, it is highly likely that you will end up in another loan program that cannot match CHAFA’s rates.

 FHA?

Another reason to choose a lender with a broad variety of loan programs is that all lenders are not licensed to offer loans insured by the Federal Housing Administration (“FHA”).

Unlike conventional loans that adhere to strict underwriting guidelines, FHA-insured loans require very little cash investment to close – as little as three and one half (3.5 %) percent down.

Although the monthly cost of an FHA mortgage is often slightly higher than the cost of a conventional loan, there are two distinct advantages.   First, when you pay off or refinance an FHA loan, there is never a prepayment penalty.   Secondly, FHA mortgages are assumable, and if you need to sell your home, your Buyer may assume your loan without paying refinancing costs.

INTEREST RATES ARE AT AN ALL TIME LOW LEVEL

The assumable feature of an FHA mortgage may provide huge advantages in today’s declining real estate market.  Financial analysts predict that interest rates will go up significantly over the next few years.  If they do and your home has an FHA mortgage, when you sell you will be able to provide your buyer with a mortgage at today’s rate – very attractive indeed! 

Thus, by taking out an FHA mortgage today, you may well be providing yourself with an exit strategy unavailable to conventional (non-FHA) mortgage holders, especially if interest rates do go up significantly. Another distinct advantage of an assumable mortgage in a declining market is that when a buyer assumes your mortgage, an appraisal is not required. Thus, as long as your buyer is creditworthy and can afford your home, you can sell it for the agreed price even if comparable homes are selling for less.

2. Select a lender with fast loan processing that consistently provides timely commitments.

Choose a lender that will quickly process your loan application and give you a written mortgage commitment on time.

The Mortgage Contingency

When you sign a Contract of Sale and put down your deposit, your contract will be made expressly contingent, dependent, upon your ability to obtain your mortgage by a specified date. This important provision of your contract, known as the Mortgage Contingency, protects you by giving you the right to cancel your contract and get back your deposit if you do not receive written approval for your mortgage by the specified date.

If you do not receive a commitment by the specified date, you can: (1) notify the Seller that you are cancelling the contract, (2) request an extension of the contingency, or (3) waive the contingency. If you neither cancel nor request an extension, you will be deemed to have waived the protection of the Mortgage Contingency and you will remain liable, accountable, obligated, to close the deal.

After The Mortgage Contingency Expires

After the protection of the contingency has expired, your inability to close because you cannot obtain a mortgage is no longer a valid excuse. If you fail to close, you will be “in default of contract”, and in all likelihood, your deposit will be forfeited to the Seller.

Lenders with organized and fast processing departments consistently produce timely written mortgage commitments before the expiration of their clients’ mortgage contingencies. The importance of expeditious and fast processing cannot be overemphasized.  For any number of reasons, it is less uncommon than you may imagine to find yourself having lost the protection of this important safeguard, worrying if you will be able to get back your deposit if you cannot close.

3. Select a lender with competitive fees.

"Points", "Discount", and "Origination Fees"

Most Borrowers expect to pay their lender an application fee to cover the cost of their property appraisal and credit check(s). Borrowers are also familiar with the term “points”, also known as “origination” and “discount” fees, and actively seek to avoid them. These fees are quoted as a percentage of your loan amount. Thus, an origination fee of one-half (1/2) point is .5% of the loan amount. By way of example, an origination fee of one-half (1/2) point charged on a $100,000 mortgage is $500.

Other Fees

"Processing", "Underwriting", "Flood Certification", "Lender Inspection" and "Tax Service" Fees

Often overlooked, at considerable expense, are the other fees that your lender intends to charge you. The larger of these “other fees” are typically listed as processing and underwriting fees. The smaller of these fees include tax service fees, flood certification fees and lender inspection fees. The total of these “other fees” (large and small) may range from $200 to $1,000 or more. You may be able to avoid or reduce these fees by negotiating them with your lender before applying for your loan.

Fee Disclosure & "GFE", Good Faith Estimate,
& Good Faith Deposit

All costs and fees that your lender intends to charge you should be disclosed to you within 3 days of your application in a document entitled “Good Faith Estimate (GFE)”. As an informed Borrower, you should request this estimate prior to signing any loan application. You may conclude that the deal at hand is not as attractive as an earlier deal that was offered to you.  Note:  a Good Faith Deposit is "Earnest Money" deposited to the lender's escrow aqcount.  You might even find that a deal you previously declined because the lender was requiring you to pay an origination fee, was actually superior to the deal now before you – even if the deal now in front of you is being offered without the payment of any points!

Caveat Emptor! 
Latin expression that means "Let the Buyer Beware!"