What to consider when shopping for home loans?

Question

Hey BP family, I am in the process of filling out loan applications to get pre-approved for my first duplex investment that I will be living in, out here in Portland, OR.

I wanted to get a different perspective from other investors on what to consider when shopping around for home loans.

Ultimately I plan on buying the property with an FHA loan to help with not having to put to much down upfront, while also eventually moving out on year 2 and pulling out some of the equity on the property through a HELOC or a REFI down the line.

If anyone can give me some sort of guidance on what to look for, I would appreciate it very much or if you happen to be able to recommend a bank/credit union that would be helpful as well !

Mathew Wray · Answer

Step 1 is exactly what Paul said: get recommendations from family, friends, and those in the industry and start calling.

I've found that lots of borrowers focus so narrowly on rates and fees and discount expertise. Do you want a lender who can fill in boxes on a spreadsheet or who has the experience and expertise to avoid problems, surmount them if they occur, and have options to discuss with you?

In your conversations with those in the industry, you'll want to get a feel for their reputation among others as well. For instance, there are a few well known institutional lenders here in town who have horrible reputations centered around not getting loans closed, having poor appraisals or unreasonable underwriter guidelines...it doesn't matter how good a rate or fee is if nobody in town wants to work with them! Same thing on the other side, there are lenders with reputations for closing loans and funding...if you see a pre-approval from them you know you're working with a pro.

You're on the right path in getting folks behind you and on your side as advisors.

I'll shoot over a few recommendations to talk to in a private message

Mathew

Paul Defngin · Answer

Nothing to it.

Start getting recommendations from family, friends, and colleagues. Call them. Share your plan.

Ask questions.

If the Loan Officer is good; they would most likely ask you good questions as well to get an understanding of how to best guide you. Work with the person that gives you the most value and you feel comfortable with. I am a lender but when I’m buying or refinancing, I go to other Loan Officers at other banks particularly because of privacy, and I prefer that I give someone else the business.

Still, if you need recommendations of Loan Officers in your State, I am sure a ton of us here can happily make introduction to their network in your area. Let me know, if needed.

Good luck.

Stephanie P. · Answer

@Alex Mora

As things loosen up, go to REIA meetings and Meet ups in your area and you'll find lenders.  Ask the Realtors there who they deal with and they'll tell you.

One huge thing for me is does the loan originator pick up his phone when you call.  If after one or two times, you don't get him/her or a quick call back, find another.  Either they're too busy to talk to you, they're too lazy to pick up the phone or too disinterested to make sure your loan is going to close.

Nick Belsky · Answer

@Alex Mora

Congrats on beginning your journey!  Sounds like you have a plan that has worked for many others and you are off to a great start.  A few things to keep in mind when shopping for lenders:

Don't fret about your credit inquiries.  From the first mortgage inquiry on your credit you have 30 days to shop around all you want.  Doesn't matter if you have 1 or 100 credit pulls, it all counts as 1 inquiry against your score and is negligible.  This is not the same with auto or credit card inquiries!

Watch out for lenders who quote rates way lower than anyone else.  Often such lenders are hiding points or fees to make the rate look lower.  Be sure to ask about these.  I did a quote yesterday with a ridiculously low rate compared to the national average and come to find out, the had him paying 2.375 point (nearly $8k).

Watch closing costs.  It is true that we lenders have to make best guesses or averages on some closing costs, but they shouldn't be outrageous and we have to keep them within a certain margin of error.  FHA loans will have an upfront PMI payment in your closing costs (that is expected).  Title fees can be shopped around for, but for quoting, most of us use an average.  Been seeing a lot of other lenders quoting VERY high closing costs.  If something doesn't smell right, something probably stinks!

Make sure the monthly payment is including your taxes, insurance, and HOA (if applicable).  I've seen borrower's get quotes for $1500/month as a payment, which is what they told their loan officer is the most they wanted to pay.  Then find out it is P+I only, not the whole payment and end up with an $1800 payment they can afford on paper, but don't want.

I'd love to quote you on your purchase but we are not yet in Oregon.  We will be in the upcoming weeks.  Who knows, maybe we can work on something in the future as I have several excellent investor products as well.  We are fully transparent and aren't afraid to tell a borrower no.  I also work with lenders who specialize at working with out of the box scenarios.

All in all, ask questions and dig deep.  I, for one, have no issue looking at quotes for fellow BPers to give my opinion.  I've done it many a time and don't mind even if I can't do loans in their areas.  I want to make sure anyone can be confident they are getting  good loan.

Good luck!

Nick Belsky

Brad Hammond · Answer

Hey @Alex Mora, I have a few lenders I could recommend for you.  As @Mathew Wray was saying, you want someone who is very knowledgeable and creative.  It is more important to find a good person than a good company.

As far as what to look for, in addition to low rates and fees, you will also want someone who is responsive and has good customer service.  Also, make sure they can be contacted on the weekends since that is when a lot of the issues arrise.  Let me know if you are still looking for people and I will connect you.

Alex Mora · Answer

@Mathew Wray Thanks ! I appreciate the advice!

Alex Mora · Answer

@Paul Defngin , thanks for the input, much appreciated !

What to consider when shopping for home loans?

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