Advice Requested: Shopping for a Lender

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starbuck1975_IHB

New member
Been lurking on this site for years, and my story is not unlike that of many who frequent here...wife and I moved to California in 2004 just as the market was heating up, chose to rent, came to wonder "how are people affording these homes...and the expensive luxury cars...and the HOAs...and everything else rolled in the cost of living in SoCal." This site prevented us from making an emotional and foolish purchase, and we are now actively dipping our toe into the market...now with a better understanding of how the real estate market got so insane, and looking for our patience to pay off.



The party line coming from the real estate agents we are talking to is that the bottom is here, take advantage of the lowest interest rates in recent history and move now because activity is starting to pick up again. We will probably take a wait and see approach, but we would like to talk with a lender and determine our true market price point.



Using online calculators and such, I have a good idea of what we can afford versus what we would like. I am not finding very many useful resources online for comparing lenders.



We would prefer a 30 year fixed, and while we have a 20% downpayment in savings, we would prefer to put down less than 20% if possible only so the downpayment doesn't wipe out our savings...our credit scores are both close to 800...we can document sustained income...the downpayment we are comfortable with, not including closing costs, is $80k.



Here is the problem...we are first time home buyers, and I also qualify for a VA loan...given today's rates, here are our questions:



1. I spoke with one credit union and one bank...both lenders steered us away from FHA and VA...and stated with our credit and downpayment, there is no reason not to go with a 30 year fixed. Both lenders stated that we could even do a 10% downpayment and still take advantage of the low rates and 30 year fixed. Curious as to advice on which loan products of the three we should consider. Are there any disadvantages to going the 30 year fixed route with less than 20% down?



2. Are there any solid online resources for comparing bank loan products? We have heard that Credit Unions often do not charge the extra junk fees that larger banks do.



3. Should we go through the pre-approval process with more than one lender, or shop around first, pre-qualify with a few, and then pre-approve with the lender that offers us the best deal?



Thank you.
 
[quote author="starbuck1975" date=1238408141]Been lurking on this site for years, and my story is not unlike that of many who frequent here...wife and I moved to California in 2004 just as the market was heating up, chose to rent, came to wonder "how are people affording these homes...and the expensive luxury cars...and the HOAs...and everything else rolled in the cost of living in SoCal." This site prevented us from making an emotional and foolish purchase, and we are now actively dipping our toe into the market...now with a better understanding of how the real estate market got so insane, and looking for our patience to pay off.



The party line coming from the real estate agents we are talking to is that the bottom is here, take advantage of the lowest interest rates in recent history and move now because activity is starting to pick up again. We will probably take a wait and see approach, but we would like to talk with a lender and determine our true market price point.



Using online calculators and such, I have a good idea of what we can afford versus what we would like. I am not finding very many useful resources online for comparing lenders.



We would prefer a 30 year fixed, and while we have a 20% downpayment in savings, we would prefer to put down less than 20% if possible only so the downpayment doesn't wipe out our savings...our credit scores are both close to 800...we can document sustained income...the downpayment we are comfortable with, not including closing costs, is $80k.



Here is the problem...we are first time home buyers, and I also qualify for a VA loan...given today's rates, here are our questions:



1. I spoke with one credit union and one bank...both lenders steered us away from FHA and VA...and stated with our credit and downpayment, there is no reason not to go with a 30 year fixed. Both lenders stated that we could even do a 10% downpayment and still take advantage of the low rates and 30 year fixed. Curious as to advice on which loan products of the three we should consider. Are there any disadvantages to going the 30 year fixed route with less than 20% down?



<span style="color: green;">THE REASON THE BANK STEERED YOU IS OTHERWISE THEY CAN NOT DO BUSINESS WITH YOU. I HAVE BEEN SELLING NEW HOMES FOR OVER 16 YEARS AND I HAVE NOT ONCE SEEN ANYONE USE THEIR CREDIT UNION FOR THEIR MORTGAGE LOAN AS THEIR RATES ARE NOT COMPETITIVE. UNLESS YOU WANT TO DO 20% DOWN WHICH IN A DECLINING MARKET I DO NOT RECOMMEND THE BEST MORTGAGE WOULD BE A VA LOAN AS IT WILL BE THE EASIEST TO QUALIFY WITH ONLY ONE BACK IN RATIO SO (MORTGAGE PLUS REVOLVING DEBT) AND YOU MAY BE ABLE TO BUY WITH NO MONEY DOWN. 2ND WOULD BE AN FHA LOAN WHICH IS AMERICAS 1ST TIME HOME LOAN AND YOU WOULD PUT DOWN ANYWHERE FROM 3.5 TO 5%DOWN AND IS STILL EASIER TO QUALIFY THAN A 10%DOWN CONVENTIONAL WHICH YOU HAVE TO BE ANGELIC IN YOUR CREDIT FOR THEM TO EVEN THINK OF GIVING YOU A LOAN.</span>

2. Are there any solid online resources for comparing bank loan products? We have heard that Credit Unions often do not charge the extra junk fees that larger banks do.



<span style="color: blue;">On a FHA or VA loan all the fees are set by the government and the can not over charge you with junk fees. </span>



3. Should we go through the pre-approval process with more than one lender, or shop around first, pre-qualify with a few, and then pre-approve with the lender that offers us the best deal?



<span style="color: blue;">I would ask friends or family and get a refferal of a good loan rep who does government loans. It is going to be the same cost any shop that you use but you want someone who does government all the time and that you click with. So interview and talk with the loan reps face to face and you decide who you like before you do anything. </span>Thank you.</blockquote>


<span style="color: red;">Sorry about the caps...</span>
 
Thank you for the advice. Although the real estate industry seems to be stating otherwise, we certainly don't have a sense of urgency to buy. If we were to wait another 6 months to a year, we could definitely secure 20% down and still preserve a healthy emergency fund in our savings.



Given that information, is the better decision to wait and go with a conventional loan? Or would you still recommend that as a first time homebuyer, we reduce our initial risk with a lower downpayment and pursue VA or FHA loans?



I should clarify on one point. The Credit Union and Bank we spoke with simply informed us that a traditional 30 year fixed would be a better product for us because we have a downpayment. However, they may have been assuming that we had 20% to put down.



Would the rule of thumb be, if we have less than 20% to put down, go with the VA, and if we have 20%, go with the traditional 30 year fixed? Or would you recommend that we go with VA even if we have the 20% to put down?



Also, we don't have a Credit Union or bank in mind. Our bank, USAA, only provides conventional loans up the the 417k limit. The representative at USAA stated that some banks offer a hybrid at $620 I believe...not quite conventional but not Jumbo either. USAA informed us that given the prices of homes in CA, any loan over $417k they would have to evaluate us at Jumbo rates, and it was the USAA representative that recommended Credit Unions as an alternative.
 
Lots of view but not many responses. Perhaps I need to simpify the question.



What is the best way to approach shopping for a lender? Go bank to bank and get quotes? Visit websites like bankrate.com?



Or are all banks more or less equal in terms of their products, and it is better to simply find a reputable lender?
 
I'm in the biz, slinging loans since 1987. Direct lender. Here's what I tell people:



1) Avoid Bankrate, etc. Their data and control over content is hopeless.



2) Avoid On-Line lenders. The service levels are terrible.



3) Avoid family member referrals. If Uncle Joe tells you to use his friend over at Joes Casa Del Mortgage for the "good guy" rate, you run the solid risk of having a deal go sideways. That will make for a very awkward time during family get togethers. It's not worth it. Ever.



4) Set a personal budget maximum for cash used and payment per month. From that point on your loan choices are simply a math question - nothing more. If you have $15,000 to spend and want a $2,500 payment you then have to go FHA and no more than $300k in price. If you have more cash to put down then your loan officer will give you options to consider.



5) Don't fear Mortgage Insurance. Some of it is tax deductible. FHA mortgage insurance can be eliminated at 78% loan to value. PMI (Private Mortgage Insurance) does not always come off when you hit 78% LTV but you can get the PMI built into your rate which is a less expensive way of structuring things. Refer again to #4



6) Since all Real Estate is local, all mortgage providers should be as well. Have a sit down with a Bank, a Credit Union, and a Broker Rep. Whomever is a better fit personally is often your best choice. If there is a problem during processing - as there often is - you can sit across the table from them and work out the details.



7) Its important: Cost comparisons. Once you've gone through process items 4 and 6, narrow your service providers down to no more than 3 choices. Call each one up Monday morning and ask for a Good Faith Estimate based on your program, price of home, and payment needs (FHA, $300k, $2,500) and tell them you want them to be able to lock the rate for 60 days TODAY. Take each GFE and compare lender only costs - not escrow, prepaids, or other items. You'll find that most lenders are within .125 in rate and $300 in fees and that's about it.



8) It's important, but not as important as you might think: Costs comparison Part II. Can you find the legendary "Best Rate"? No. Neither can you get "The Lowest Rate" because rates change by the moment and vary widely by individual circumstance. What you should shop for is competence and not cost. A professional loan officer is an advocate on your behalf to ensure your loan makes it through the maze of underwriting. You might get .125% less in rate if you shop around. You also might want to take your own life after being put through a terrible process just to get that .125% less in rate.



9) Once you've compared the professionalism of your loan officer and the competiveness of their rates, make your decision and stick with it. You might get a call from Joes Casa Del Mortgage about their sexy new rates, but don't fall for it. You've done the research on the important items - professionalism and competitiveness. The better deal.... isn't.



My .02 Soylent Green Is People.
 
[quote author="starbuck1975" date=1239317415]Lots of view but not many responses. Perhaps I need to simpify the question.



What is the best way to approach shopping for a lender? Go bank to bank and get quotes? Visit websites like bankrate.com?



Or are all banks more or less equal in terms of their products, and it is better to simply find a reputable lender?</blockquote>


I went to bankrate.com, which told me that Bank of America had the best prices. I then went to my real estate agent, who recoiled in horror when I told him I had a BoA loan-because right now they are too busy digesting Countrywide, they take forever (60 days+) to close escrow, which means they are completely useless because sellers give up before the process can be completed. So I went elsewhere (Provident, a local bank in Riverside).
 
[quote author="Geotpf" date=1239322066][quote author="starbuck1975" date=1239317415]Lots of view but not many responses. Perhaps I need to simpify the question.



What is the best way to approach shopping for a lender? Go bank to bank and get quotes? Visit websites like bankrate.com?



Or are all banks more or less equal in terms of their products, and it is better to simply find a reputable lender?</blockquote>


I went to bankrate.com, which told me that Bank of America had the best prices. I then went to my real estate agent, who recoiled in horror when I told him I had a BoA loan-because right now they are too busy digesting Countrywide, they take forever (60 days+) to close escrow, which means they are completely useless because sellers give up before the process can be completed. So I went elsewhere (Provident, a local bank in Riverside).</blockquote>


I can attest to that! I had a Countrywide Loan for a few years and recently re-fi'd at 4.375%. THREE WEEKS without a call back AFTER paying the non-refundable $450 loan application fee. I received the paperwork in three days and signed everything on the spot. The paperwork said to wait for a Loan Agent to contact me and give me a fax number to send in my paperwork. It also said that I had 10 days from receipt (Fed-Ex) to get the paperwork into Countrywide. Well, an agent never called.



I called the guy that started my loan process (he was out of their Anaheim office) and he said they are way backed up and somebody WILL call me. He said not to worry about the 45 day lock because they will extend it and not to worry about the 10-day notice as they will extend that as well.



I waited two more weeks. No call. I called back and their voice-recording said 24-48 HOURS before getting a returned message and to call the manager if you have any issues with that!



So I'm 28 days into a 45-day lock with no contact whatsoever from Countrywide. Oh, I STILL receive at least one to two emails a day from Countrywide telling me to refinance my home with them and also at least a couple junk-mails a week from them telling me to refinance as I am a valuable customer.



I'm tired of this garbage and only went with them because A) I was an existing customer and thought my loan would sail through and B) I got a 4.375% rate at 0.5 points which was and still is a great deal.



So caveat emptor.
 
[quote author="starbuck1975" date=1238497041]Thank you for the advice. Although the real estate industry seems to be stating otherwise, we certainly don't have a sense of urgency to buy. If we were to wait another 6 months to a year, we could definitely secure 20% down and still preserve a healthy emergency fund in our savings.



Given that information, is the better decision to wait and go with a conventional loan? Or would you still recommend that as a first time homebuyer, we reduce our initial risk with a lower downpayment and pursue VA or FHA loans?



I should clarify on one point. The Credit Union and Bank we spoke with simply informed us that a traditional 30 year fixed would be a better product for us because we have a downpayment. However, they may have been assuming that we had 20% to put down.



Would the rule of thumb be, if we have less than 20% to put down, go with the VA, and if we have 20%, go with the traditional 30 year fixed? Or would you recommend that we go with VA even if we have the 20% to put down?



Also, we don't have a Credit Union or bank in mind. Our bank, USAA, only provides conventional loans up the the 417k limit. The representative at USAA stated that some banks offer a hybrid at $620 I believe...not quite conventional but not Jumbo either. USAA informed us that given the prices of homes in CA, any loan over $417k they would have to evaluate us at Jumbo rates, and it was the USAA representative that recommended Credit Unions as an alternative.</blockquote>


If you have the 20% down then a conventional loan would be a better rate and could be a better way to go. Anything less and you will have PMI which you can write off but if you make over 6 figures then no. And The PMI companies along with the lenders are cherry picking for the best buyers otherwise they will start charging you much higher rates and fees depending on how bad you credit is. A VA loan like i say is the easiest loan to do but with both FHA and VA loans they have their loan limits depending on what county you live in and that goes true for the conforming hybrid loans also. Honestly what drives people to buy is their tax man is screaming at them for a write off or they are tired of renting and that nonsense. My opinion is there is going to be a sea of foreclosures that are hitting the market in the next couple of months because of the silly government putting moratoriums on foreclosures to try to reworks which failed miserably on both accounts and these high foreclosures are going to continue for a couple of years at least. So prices will continue to fall and with over 600,000 Americans losing their jobs every month since Dec and will continue into 2010 according to the FED. Combine that with the first wave of over 700,000 Americans losing their unemployment benefits in the summer and we are still just now starting to see the trillion dollars of Option Arm and Alt-A loans reseting till 2012 and the commercial Real Estate Market that is just now blowing apart and you think the banks had a problem with housing. Not to be negative but this is the reality. But the question you have to ask are your jobs safe for the next few years if not i would stay away and wait. If you do want to still buy realize the 20% down payment could vanish as the prices march lower and if you ever need to sell the home (health issues or job loss or job transfer among others emergencies) or refinance it in the next 3 years or so that it will not be an option as you owe more than it is worth. With VA loan you will not have that much skin in the game so if you had to short sell or god forbid foreclose that may be worth the sacrifice of not having the best interest rate. The positive is if you find your dream house and want to stay there for 8 to 10 years and weather the storm and have lots of money (like your 20% down) in the bank and are happy with the house and the payment irregardless eventually in time things should be better by then. Cash is king and the more you have that is liquid the better you will be to handle this depression. Sorry for the lengthy response.
 
I know they used to say a credit score over 700 was very good.

Now that the credit market has gotten tighter what do they consider to be an excellent credit score?
 
If the purchase is a Condo, expect .75 in fee from Fannie Mae.



A short matrix on credit scores



75 - 80% LTV 720-739 FICO .25 in fee

75 - 80% LTV 700-719 FICO .75 in fee

75 - 80% LTV 680-690 FICO 1.50 in fee



So with 20% down and superb credit, you still get hit .25 for FICO and possibly .75 for Condo's. That "best rate" you heard of at 4.25% quickly becomes 4.625% (for the same fee.....) if you get hit for these kinds of pricing issues.



No price hits for FHA, down to 620. Why? FHA Monthly Mortgage Insurance on the loan. It's nearly risk free for the lender. Pricing hits do moderate some if you put less money down. Why again? PMI is added to the loan which helps mitigate risk.



Crazy, but the world we live in.



SGIP
 
[quote author="Soylent Green Is People" date=1239408090]If the purchase is a Condo, expect .75 in fee from Fannie Mae.



A short matrix on credit scores



75 - 80% LTV 720-739 FICO .25 in fee

75 - 80% LTV 700-719 FICO .75 in fee

75 - 80% LTV 680-690 FICO 1.50 in fee



So with 20% down and superb credit, you still get hit .25 for FICO and possibly .75 for Condo's. That "best rate" you heard of at 4.25% quickly becomes 4.625% (for the same fee.....) if you get hit for these kinds of pricing issues.



No price hits for FHA, down to 620. Why? FHA Monthly Mortgage Insurance on the loan. It's nearly risk free for the lender. Pricing hits do moderate some if you put less money down. Why again? PMI is added to the loan which helps mitigate risk.



Crazy, but the world we live in.



SGIP</blockquote>
What is the rate for an FHA loan with 3.5% down vs. 5% down? How much is the FHA monthly mortgage insurance? What are the current rates for a 30-year fixed FHA loan?
 
There isn't a rate or fee difference between a 3.5 and 5% down FHA



FHA Monthly Mortgage Insurance is about .55% of the loan ($300k = $137 per month)

Conventional Private Mortgage Insurance is about 1% of the loan ($300k = $237 per month).



This assumes you can even get PMI in OC with a sub 740 FICO score on a condo. It's like trying to find a non-Kool Aid drinking Realtor. They exist, as do leprechauns and unicorns, the trouble is locating one.



FHA has an Up Front Mortgage Insurance Premium (UFMIP) at 1.75% of the base loan amount ($300k = $5,250) which is usually financed. Yes, this makes FHA more expensive, but if you can't buy the home because of PMI what really are we comparing?



FHA is an insurance program, not a loan program per se.



Condo Purchase FHA 30 Fixed, Minimum Down, 710 FICO, locked for 60 days at 1.0 point: 4.875 on average.



Condo Purchase Conventional 30 Fixed 5% down, 710 FICO, locked for 60 days at 1.0 point: 5.125% on average.



PLEASE NOTE: Although I'm in the biz, I'm giving this information as a service only. No APR's are quoted and many, many factors go into a rate quote. I'm also not trolling the board for business just providing info ONLY.
 
<strong>This assumes you can even get PMI in OC with a sub 740 FICO score on a condo. It?s like trying to find a non-Kool Aid drinking Realtor. They exist, as do leprechauns and unicorns, the trouble is locating one</strong>.



Have I told you that I really enjoy your writing?!
 
Thanks for the high complement.



I got a degree in film writing from Chapman University, but found I was a crappy Waiter. Without any alternatives to support myself I began a career in mortgage banking.



:-)
 
[quote author="Soylent Green Is People" date=1239422013]Thanks for the high complement.



I got a degree in film writing from Chapman University, but found I was a crappy Waiter. Without any alternatives to support myself I began a career in mortgage banking.



:-)</blockquote>


ROFL!
 
I closed earlier this year on a townhome in OC (not Irvine). 30-year fixed FHA loan, 5%, .5 discount point that was paid by the seller (bank) because I asked for closing costs. IMO, if you use an FHA loan, you must work with a mortgage consultant that is competent (so sad I feel the need to stress that), organized, responsive, and very knowledgeable about FHA requirements. I have very good credit, but I used an FHA loan because there weren't any other loan programs that I was aware of that would have permitted me to put less than 20% down.



The above-mentioned mortgage consultant qualities are especially important for condo/townhome buyers, because the HOA and the home will be closely reviewed/scrutinized due to FHA. My community was also not FHA-approved, which further complicated the process. The community was not FHA-approved because the units first sold during the bubble and the home prices exceeded the FHA limit at that time. My mortgage consultant and his associate initiated the "spot approval" and appraisal right away, and I was able to close in 30 days. A spot approval is basically an approval of just the unit subject to the sale, as opposed to the lengthy process to approve the entire community that the unit is in.



I had no prior relationship with the (Wells Fargo) mortgage consultant; he was a referral from my agent. However, I would refer all of my friends and family to him. After reading through some of the issues others have had recently, I realize that I was very fortunate. Every phone call or email was returned within minutes--seriously. Please send me a PM if you would like his info. His office is based out of the SD area, but the service he provides is worth it. Also, my career is completely unrelated to real estate, so I receive no benefit by referring others to the mortgage consultant I worked with. I'm just happy to help somebody who provided excellent service to me.
 
Everyone thank you for the inputs. We have no rush to buy, and recognize that the current market dynamics will further put downward pressure on prices. The longer we can wait, the more cash we can save, which would provide us with a reasonable decision point of 20% on a conventional loan versus VA or FHA.



Soylent Green, your breakdown is probably the best advice I have seen for shopping around. We will follow that advice and start shopping for a lender once we think pricing is at a point where the risk tradeoff is worth making the leap.
 
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