How do I find a good lender?

Having a good mortgage lender–a bank or savings & loan, an online lender, or a mortgage broker–can not only make the mortgage process easier, it can also save you a great deal of money. Here is how to choose the right lender:

Talk to people whom you know. Real estate agents usually have one or more competent, professional lenders that they regularly work with. Another professional you work with–a financial planner or accountant, a stockbroker or an attorney–may also know a reputable lender. You may want to ask a friend, neighbor, or co-worker who has just purchased or refinanced a home.

Check with a direct lender you work with–a bank, a local savings and loan, or a credit union. Remember, there may be some limitations in working with a direct lender. Most lenders have a relatively limited range of loan products, and, out of the 40-plus local lenders in the Bay Area, you will need luck to find the one with the most competitive rate and terms on the type of loan you have chosen.

Call at least one mortgage broker. A good mortgage broker will have a working relationship with at least fifty different lenders, including almost all local, regional, and national banks and savings & loans. Lenders discount their loans to mortgage brokers. A borrower does not pay more to use a broker, and often pays less. Mortgage brokers have other wholesale sources not available to individual consumers. Borrowers save money when a broker shops many different lenders for the lowest rate and fees. A broker is especially valuable if you have an unusual scenario.

If you are shopping with online lenders, be aware that the rates published online are often for loan programs which have very tightly defined criteria that few borrowers meet. Online lenders generally cannot provide the knowledge and feedback that might help you make the best choice among the wide range of mortgage options. Also, some online lenders have developed a reputation for not providing the rates advertised.

Interview more than one lender. You need to feel comfortable with the lender you choose. You want a lender who asks probing questions, listens to your answers, and presents you with intelligent options. Here are some questions you might want to ask a prospective lender:

How many loans have you funded over the last 3 years?

You want a lender who has consistently been closing at least five loans a month, not including home equity lines. In order to stay on top of the market a lender has to be consistently funding a lot of loans. For a mortgage broker this is especially important – you want someone who knows which lenders are the most competitive for the type of loan that you want. In a competitive market the lender with the lowest rate is constantly changing, and you need a broker who knows where and how to shop for you.

What percentage of your closed loans are for purchases?

For a lender, taking care of a purchase transaction is much more complicated than doing a refinance. You want to work with a lender who spends at least 50% of the time working on purchase transactions.

Why are you with the company (bank, s&l, mortgage brokerage) that you are with?

It can be a great benefit to be working with a sizable company with a good reputation. In a competitive bidding situation a strong pre-approval letter from a reputable lender can make the difference in having an offer accepted. If you are dealing with a mortgage broker ask if the brokerage company has their own mortgage bank; the leverage that a broker has with his or her own mortgage bank can be a big benefit to you.

Tell me about your last purchase transaction?

You want to work with a lender who is creative, knows the market, and knows how to structure your financing in the way that best serves your financial plan. You want to know which loan was chosen, and why, and, if you are talking to a broker, which lender was used, and why that lender was chosen.

Again, the most important qualification for a lender is careful listening, and addressing your needs. You want to work with a lender who gives you options, and the tools and understanding to intelligently choose among them.