I’ve mentioned before that I’m in the middle of my first-ever home-buying adventure. Finding the right home was one thing. Bidding on it was a beast of its own. But getting the right mortgage?
I’ve now been preapproved by not one, not two, but four lenders. I vetted a handful of smaller businesses here in Los Angeles, and, at my mom’s suggestion, Quicken Loans (spoiler, my mom is always right). And each time, there’s been an underlying pressure, saying that “the mortgage rates are lower now than they ever will be again.” True or not, it definitely lights a fire under my ass.
Luckily, unlike the houses, it seems much easier to spot bad bones in a lending institution. So of the four, here’s what I noticed:
1. Most are pretty darn similar
I would say 3 of the 4 were offering essentially the same package, in terms of the rates. The differences lay in “points” – or a fee based on a percentage of the overall loan amount. Basically, each point is 1% of the overall loan that you’d be paying upfront, in order to lower your future monthly payments.
2. They work for the banks, not for you
Duh. They’re compensated by the banks, and their goal is to give your hard-earned money to the bank, long-term. The trick then became finding a lender who realized they wouldn’t get a penny from me if they weren’t honest and direct.
One thing that helped me narrow down my options was this: who was trying to push PMI (Private Mortgage Insurance) into the loan itself?
Because I don’t have the full 20% to put down right now, my loan is going to have to come with some form of mortgage insurance, so the lenders feel comfortable handing off 90% of the home value. This presents two options: either I pay that insurance monthly until I reach 20% equity, on top of my mortgage payments, or it’s bundled in with the mortgage and I pay an overall lower monthly rate, but for much longer.
Obviously, I don’t want to pay PMI for 30 years. And I don’t want to refinance on a loan that’s supposedly the lowest it’ll ever be again. Any lender would see this logic, so when one pushes not once, but twice on bundling in PMI, it’s clear they don’t have my best interests at heart. Time to drop them.
3. The numbers have to make sense
Oddly enough, none of my lenders preferred email to phone. The, um, personal finance blog may tip you off, but I’m a very numbers-and-visuals person. I need to see exactly how things break down. Give me a good spreadsheet over a phone call any day.
Just two examples of bad numbers: less-than competitive rates, or drastically higher “points” and fees. They can shout all they want about having the monthly or the best closing total, but if they don’t make sense together, that’s a 30-year regret just waiting to happen.
So after two lenders tried to smokescreen me with numbers that didn’t make sense, I moved on. I need the full, clear picture in order to make my decision, and if they’re glossing over numbers and rounding, or pushing for one plan that puts me at a disadvantage, it’s not going to work out.
Shoutout to Jonathan at Quicken Loans, though. He was the first to email me with a clearly broken down sheet of what my costs would be, both at closing and month to month. Then he hopped on a call to discuss. Way to go, Jonathan!
4. They need to be fast
The housing market is crazy. People are able to make a decision on a home so quickly that you don’t get a chance to sleep on it before, poof, it’s off the market. I needed someone who was incredibly speedy, so when I asked for a preapproval letter at a specific limit, I could get it back and send out an offer within a few hours, tops. While countering an offer, it’s even more important. You can stand out as a buyer by sheer virtue of having your shit more together than the other guy. Make sure your lender can keep up, so you can stand out.
I have to say, my rep over at Quicken Loans blew me away. During my most recent offer panic, I emailed him at 6:02 am on a Monday needing a new letter. He had it back to me by 6:15 am. I’m not kidding.
5. Some can be more creative than others
This is where Quicken Loans really won my business. While some lenders were trying to push PMI into the permanent loan, Jonathan at Quicken found a way to forego it. Instead of paying $150+ of PMI every month, they suggested I pay a lump sum up front of $5,000 – saving me several thousand dollars when all is said and done.
I’d never heard of this before, but it makes sense. The banks would rather know they have the initial investment, instead of gambling long term on my payments. It makes sense for me, too, since my ongoing monthly payments are shaved down.
I’m looking to rent my new home long-term, so the lower the monthly payments, the higher the profit I’ll be able to enjoy. Even though it’s a higher initial investment, it’ll be worth it long-term.
Edit: I ran the numbers and decided not to pay it off up-front after all. Here’s the thought process there.
6. They have to be in your court
It helps to build a connection with your lender, and let them know where you are and what your goals are. Jonathan gave me a call when we put in the most recent offer, and talked through not just the numbers but the long-term goals I had in mind. While I’m not sure whether this was strategic on his part, I wouldn’t be surprised looking back.
I didn’t realize until recently that, once your offer is taken seriously, the seller’s agent actually calls the lenders to hear about your viability as a buyer. Jonathan at Quicken Loans was on my side 100% of the way. He emailed me the second he got a message from the agent, and reassured me that, and I quote, he would “sell the heck” out of me. He even followed up after the call to share how it went!
Now that my ducks are in a row, my finance-brain can rest easy knowing I’m actually making a smart decision, long term. And you can bet I’ll be using Quicken Loans again for future mortgage needs!