The Mortgage Shopping Process

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Home buyers who do mortgage shopping can avoid leaving money on the table by finding the right lender to help them through the process.

Whether you’re shopping for items online or in person you usually hit the reviews, check with friends, and scope out the best deal. After all, who wants to buy something that falls apart? Yet when picking a mortgage lender, buyers don’t always think about comparison shopping.

In a survey of recent home buyers, 12% of millennials said they believe their mortgage interest rates were too high. Some buyers may think that when mortgage rates are low, they don’t need to shop for the best offer. But even a quarter of a percent reduction in interest could save a buyer thousands over the life of the loan.

You may think mortgage shopping is about as much fun as prepping for a tax audit. It’s true that comparing home mortgages can get complicated. But you don’t need a finance degree to make an informed decision. Here are some steps to get there.

Ask your Realtor for Lender Recommendations

When looking for a lender, talk with your Realtor about your current situation, they may have a lender that could fit your needs. Otherwise seek out local banks, credit unions or independent lenders. Online reviews are another great option when choosing a mortgage loan provider.

When a Realtor has recommended a lender to you, they have had consistent success with that lender helping their clients. There are laws in place that prevent a lender from giving the agent a kick-back for the referral, so do not think that an agents lender referrals are just another way to get money out of you. It is a genuine relationship and both sides want to see you succeed.

Interview your Mortgage Lender

During a meet and greet, you and the loan officer will usually ask each other questions, almost like a job interview. With the information you provide, the mortgage lender will suggest options or strategies to acquiring to have a successful loan process.

Typically a lender may boast that their rates cannot be beat. In most cases that is true but, it is still strongly encouraged to shop around to find a lender. Some lenders may even offer an incentive if their rates cannot be beat.

A common misconception when getting multiple per-approvals, is that each one will affect your credit score. It will a very small amount but, lenders will see that you are shopping around for better rates. Mortgage Lender credit hits aren’t as bad as applying for credit cards or car loans, those are the hits that will have dramatic affects on your credit score.

Here are some questions that you could ask during the interview process:

Fact finding about the process:

  • Would you take me through the process?
  • What should I expect?
  • What will information will I need to supply?

Compatibility with the loan officer or mortgage banker or broker:

  • What’s your communication style? Are you willing to communicate virtually?
  • When would I work with you? Are you available in the evenings?
  • Will I work with you or a member of your team?
  • What do you think of my time frame to get to closing?
  • What if any problems do you foresee?

Track record of loan officer and lender:

  • How long do loans you process typically take to close?
  • How would you expedite the process if there’s a tight time frame?
  • About what percentage of loans you work on close on time?
  • How many loans have you worked on that haven’t closed or haven’t met deadlines?
  • What’s the biggest problem you’ve had with a loan and how did you fix it?

Get and Compare Loan Estimates

After interviewing a mortgage lender and agreeing to let them run your credit, they can give you what is called a Loan Estimate. It outlines the terms of the loan and type of loan that they are offering, then you can take the loan estimate to other lenders to more accurately compare rates.

This process may sound daunting to some but, it is a necessary step. The savings alone over the life time of your loan makes the process completely worth it.

VA Lending Myths: What every agent should know

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Being a new agent, I am like a sponge in search of knowledge. I look to veteran agents for their wisdom and listen to their mistakes so that I don’t make the same. However veteran agents can often be misinformed about certain aspects of real estate. One of the biggest faults that I have seen so far, is their understanding of a VA Home Loan when it appears on an offer to purchase on their listing.

Being an Army Veteran myself, and using VA Home Loans, I already have firsthand experience on the process and benefits of VA lending. When talking to experienced agents, they just loath this type of financing when it comes to the table. Mainly because there are extra steps they must do as an agent, and it can add a little stress to an already stressful process. But the biggest issues are the misinformation that they have on a VA Home Loan. So, lets dig into some of these Myths.

VA Funding Fee – All Veterans must pay a VA Funding Fee

FALSE! If a Veteran has a minimum disability rating of 10%, then are exempt from paying a funding fee. A Veteran who is receiving disability benefits knows what their rating is. So, to a buyer’s agent, when you write that offer to purchase ask your buyer if they are exempt from the funding fee. They may not know what it is and simply asked if they are receiving disability compensation from the VA. If they are, then they are exempt from the funding fee. Sellers’s agents, when you see an offer that has a funding fee, call the buyer’s agent, and ask if their buyer is exempt from the funding fee. Story time…

I had a listing earlier this year that received an offer to purchase that had VA financing and required the sellers to pay the fund fee. Before I even presented the offer to my sellers, I called the agent and asked about the funding fee. The agent didn’t know what the fund fee was and just assumed that all Veterans paid it. He called his buyer to find out that he was in fact exempt from the funding fee. They made the adjustment on the offer to purchase and resubmitted it.

Here is more information on the VA Funding Fee.

Wood-destroying Insect Inspection

This only applies to the State of Wisconsin, which is where I am licensed to practice real estate, but it is part of the offer to purchase. Before checking the box on the offer, make sure that the county that the home is in is on the exemption list. If it is not exempt, then you can get creative for who must pay the inspection fee. A wood-destroying Insect inspection is usually about $150 but can be paid by another party. Talk with the Veteran’s lender about what options are available to you before writing the offer.

VA Loans are Assumable

TRUE! If you are working with a Veteran seller and you have a buyer who is also a Veteran, that VA Home Loan can transfer from one Veteran to the other, if the buyer meets the credit requirements. In some special cases a non-veteran can assume a VA Home Loan, but it is best to work with a lender on the details. The fact that it’s a VA Home Loan can be useful in marketing the property to potential buyers as well, knowing that they can take over the liability of the loan. But make sure that you educate your seller that they must request to be removed from the loan after the sale closes, or they could be held liable if the buyer misses a payment.

The National Guard or Reserves cannot get a VA Home Loan

FALSE! This recently changed that National Guard and Reserves can now get VA Home Loans. To qualify they must have 90 days of active-duty service. National Guard and Reserves do earn active-duty time for small operations near their home. For example, with all the National Guard and Reserves that have been granted orders to assist with COVID-19 testing, they may have earned those 90 days of active-duty service which would qualify them for a VA Home Loan.

A VA Home Loan isn’t better than a Conventional Home Loan

FALSE! If you have a Veteran buyer and they qualify for a VA Home Loan and you are encouraging them to get a Conventional Home Loan because its more competitive, you are a lazy and incompetent agent. Do you know that VA Home Loan’s do not require a Veteran to pay PMI? They also don’t require the Veteran to put a down payment. With both factors weighed into a loan, your buyer can afford more house than a conventional loan. By pushing a Veteran into a Conventional Home Loan, you are literally costing your buyer THOUSDANDS of dollars over the life of the loan. Shame on you.

Well Mr. Wizard, what can I do then? In Wisconsin you can get your buyer pre-approved for both a VA Home Loan and a Conventional Home Loan through the same lender. When you submit the Offer to Purchase, write in that conventional loan under the financing section. After the offer is accepted the lender can switch the buyer to a VA Home Loan. It is perfectly legal to switch lenders and types of loans in the middle of an accepted offer, your buyer is in a contract that is requiring them to get financing. It doesn’t matter where it comes from or what it is, they are just required to get it. Yes, it will be a surprise for the sellers and I’m sure the other agent is going to throw a fit because they now must work with a VA Appraiser, but it gets your Veteran buyer a home.

Hopefully you don’t have to go that route, but if you find yourself submitting offers for your buyer and it keeps coming back that it was because of VA lending, then you can toss the hail mary that I described above. Once again, it is legal because the buyer is required to get financing. If they can’t, then that’s a different story.

Summary

There are a bunch more myths about VA Home Loans that I didn’t talk about but take your favorite lender out to lunch and ask them about VA Lending and inform yourself. It is a really good program for Veterans, and it ensures that they get taken care of when the buy a home. For more information on VA Home Loans, check out the VA website that describes the entire process. It even has a section for Real Estate Professional’s so that you can educate yourself. Lastly, look at the National Association of Realtors MRP program. It’s an easy course that earns you a designation that doesn’t cost money to renew. It also opens you up to an entire part of business that you may have not been getting in the past.