home buying

When my friends ask me what they need to know when they start shopping for a new home, this is the first piece of advice I give them. I’ve been working on real estate transactions for almost a decade (October is my anniversary), and financing is the most crucial element!

The negotiation process with a prospective seller over a property can be arduous, with parties stuck at an impasse with sometimes hundreds of dollars between them. Buying the right loan product will save you thousands of dollars over the life of your loan. Squaring away your loan deal before you shop for a loan will make these negotiations even more fruitful.

Loans aren’t simply a “you get what you qualify for” proposition–products vary from bank to bank. It can be very intimidating to shop aggressively for a loan product but it is very worth it in the end. All of those times you spend haggling a great deal at a flea market will literally be pocket change compared to the satisfaction of saving thousands on your rate.

Spending the time to shop around for a loan you qualify for can be difficult because it takes time and often folks are under a time crunch (like a 30 day contract mortgage contingency deadline period, for example), which is why it is crucial to begin this process before you start shopping for a property. It’s not nearly as fun as daydreaming about the perfect place to situate your collection of rare succulents or where you’re going to get your Sunday morning brunch around the corner, but it is so important.

The organic bacon will taste way better if you know you got the best mortgage rate possible.

There are two main ways to shop for a loan. You can shop directly with mortgage companies or use a mortgage broker as an intermediary. All of the major banks and credit unions will have a mortgage department where you can call, give them your information and find out what rate you qualify for. This can be great because you can really see where you’re going to save money, compare different lenders and find something extremely competitive. If you’re a true bargain shopper and not afraid of talking about money, this is a great way to feel like a triumphant hunter holding a major trophy (or teddy bear if you’re vegetarian).

Lenders make money off your loan in two major ways–one is your interest rate (easy to compare between products) and one is closing costs, money you pay up front at your closing that you never get back. Sometimes, depending on how long you’ll be in a property, you can save money over time by “buying points” off a loan. Certain fees are negotiable and non-standard, like origination fees and loan servicing fees. Sometimes these origination fees are thousands of dollars, so what looks like a low interest rate isn’t actually that low because you had to pay so much up front for the privilege of borrowing money.

Working directly with a lender generally means you will have one point-person during the sales process and another point-person during the closing process.

If you aren’t interested in doing the ground-work of shopping for a loan yourself, find a great mortgage broker. Not a good mortgage broker, not an “okay” mortgage broker, find a mortgage broker who is a mortgage super hero*. You’re going to need to do some digging, but I find the best way is to chat up your friends who have recently purchased a home or are in the residential real estate business (even if you aren’t using their business geographically, they may have good contacts within your state).

Ask for client testimonials and referrals. Talk to the mortgage broker and get a feel for whether or not you trust them. Look for them on Yelp and other consumer referral sites. (Look beyond the star rating and really read the reviews, folks will occasionally low-star a professional when they are looking for a person to blame and sometimes that person is the mortgage broker when what went wrong in the transaction wasn’t their responsibility.)

A mortgage broker can be a huge asset in aggressively shopping for loan products. They can also help you qualify for a loan when you have a difficult or non-traditional credit situation (self-employed and entrepreneurs fall into this category). They will shop you around to all the major and minor lenders in their network and get paid a commission by the mortgage company for selling you the loan, so your mortgage broker’s work is at no cost to you. They act as your point person for the closing process and generally remain consistent throughout the process.

They also will handle last-minute loan snafus (as there are many possibly worst-case scenarios), which is where the super hero skills really shine. I’ve personally found my problem solving skills and logical reasoning are often more valuable than my legal education during the real estate closing process. A super hero mortgage broker is going to have these problem solving skills sharpened through thousands of closings.

There are a lot of things you can do to clean-up your credit score before loan shopping in order to qualify for better loan products, I’ll address that in a later blog post. But even doing some cursory work before you begin the home shopping process can help you get better rates.

It’s also important to note that both you and your property have to qualify for your loan product and rates cannot be locked in until your property is identified, but laying this groundwork ahead of time or concurrent with shopping for real estate is crucial to saving money in the long-run.

The process of buying a loan product is one of the least sexy parts of buying a home but it is one of the most crucial to saving money over the lifetime of your property ownership. Imagine how many more brunches you can buy with your savings!

*Of course hero in this context is a gender-neutral term.

If you have any questions about the home buying process, get in touch!

bevin at bestlittlelawfirm.com or (347) 878-3370