SMART ESSENTIALS FOR BUYING A HOME. Amy J. Hausman
to release buyers from the contract with notice of 24 to 48 hours; however, the broker will retain right to compensation — through a protection clause — should you subsequently buy a property, within a specified time frame, that was introduced to you by the agent or brokerage.
Essential Takeaway: If you have a home to sell, and it’s in the same city where you’re looking to buy, this same real estate professional may be able to handle your sale transaction as well! Knowing the big picture, this single agent is in the best position to coordinate the timing of your sale and purchase, and help you negotiate contract terms that coordinate the two transactions. If you’re a twofer: Ask for a discount on the listing commission side — that’s the expensive one you pay for.
TEAM PART 2: SELECT AN OUTSTANDING LENDER
When you’re in the market to buy a home, unless you are paying all cash, it’s essential to compare lenders to find the best rate and terms for your mortgage. Think about it: Just as you will look at different homes on the market, it’s important to check all the financing options available. Depending on your particular situation, the traditional 30-year, fixed-interest-rate loan may not be the best option for your home purchase.
According to a recent survey by Harris Interactive and LendingTree, 40% of home buyers obtain only one mortgage-loan quote before making their decision on a lender. That’s dumb. Understandably, not having done much comparison shopping, only about a quarter (28%) of those surveyed feel they got the best rate and terms.
Mortgage shopping can be frustrating and complex — especially if you have never done it before or haven’t done it recently. But when you’re considering a financial commitment for many years to come, you owe it to yourself to find the loan package that best fits your needs. All loans are not created equal, and borrowing costs aren’t the same either.
Types of Mortgage Companies A number of different types of companies offer home mortgage loans. Not every mortgage provider offers every type of loan option. With that in mind, here is a brief summary of how they operate:
<> Mortgage bankers are direct lenders, who use their own funds to originate loans, then often quickly sell the loans on the secondary mortgage market. They may or may not continue to service the loans (sending bills, statements, etc.) after selling them. Typically, the loans they provide meet guidelines established by Fannie Mae and Freddie Mac^^ or other government programs that secure loans, so the loans can be easily sold in the secondary mortgage market. (Most home buyers work with mortgage bankers.)
^^Fannie Mae And Freddie Mac First the names … Fannie Mae was a nickname (now its official name) given to the Federal National Mortgage Association, authorized by Congress in 1938 as part of the New Deal. The Federal Home Loan Mortgage Corporation — nicknamed Freddie Mac — came along in 1970. Both government-sponsored enterprises (GSEs) were designed to expand the secondary market for mortgages so that originating lenders (those actually providing funds for loans) could sell their loans and thus replenish their funds to make more loans. The GSEs accomplish this by either purchasing mortgages or guaranteeing mortgages owned by other investors — provided the mortgages conform to Fannie/Freddie standards. The mission of Fannie Mae and Freddie Mac is to make homeownership more affordable for the average Joe and Jane.
<> Portfolio lenders are also direct lenders, using their own funds to make loans. Rather than selling their loans, they typically keep them as investments — at least for a period of time. Because resale isn’t the goal, portfolio lenders are not as bound by Fannie Mae/Freddie Mac guidelines. That leeway can make these lenders more flexible. Some institutions, such as banks, savings and loans or credit unions, may operate both as mortgage bankers and portfolio lenders.
<> Mortgage brokers work with a number of lenders, and therefore can offer a wide variety of loan programs. Serving as an intermediary between lenders and borrowers, the mortgage broker will help the borrower select a loan program, then will look for a lender to fund the loan. The broker works with the borrower to complete a loan application, collect required documentation, order a credit report, arrange to have the property appraised, etc. Payment for the broker is factored into the cost of the loan, usually as “origination” or “underwriting” fees in closing/settlement costs^^.
^^Closing/Settlement At closing or settlement (also, “closing escrow” depending on your area) all parties review and sign the documents used in the real estate transaction for a successful transfer of ownership. A “closing sheet” summary document is prepared by a closing agent or attorney detailing the fees, commissions, insurance, and other transaction amounts. Save this document, known as the HUD-1 Settlement Statement, in your files.
<> Correspondent mortgage brokers act as agents for a single lender (but sometimes several) from loan origination through settlement/closing. The loans are made in the correspondent’s name even though the lender supplies the funds, usually underwrites the loan and owns the loan after closing/settlement. The correspondent may also become the servicer for the lender. Correspondents often are paid from the loan origination fee charged to the borrower.
How To Size Up A Top-Quality Mortgage Professional No matter what type of lender you work with, be sure to bust the chops of every mortgage professional in an interview before you commit to working with them. The scary part is that until recently, less licensing/training was required of loan officers than of real estate agents. It’s smart to talk to several mortgage professionals and find out which is the best fit for you based on your financial needs. There’s no way around it — ask the hard questions:
1. How long have you been a mortgage professional? How long have you been with the current company? Are you registered as a mortgage originator?
2. What kind of company is your mortgage firm? (See earlier descriptions of banker, lender, broker.)
3. How long is the lock period on your loans? Do you provide lock-ins in writing? Do you charge a lock-in fee — and if so, how much?
4. When can you provide me with a Good Faith Estimate^^ of loan costs?
^^Good Faith Estimate (GFE) You have the right to ask lenders for a Good Faith Estimate of all loan and settlement/closing charges before you agree to a loan or pay any fees (other than for a credit report). According to the Real Estate Settlement Procedures Act (RESPA), lenders have three days after you apply for a loan to provide you with a standardized GFE, but may not charge you for anything more than the cost of a credit report (about $15 to $30) until after the GFE is issued and you agree to the loan.
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