How to Choose the Right Mortgage Lender

Financial Capital Group

When shopping for a mortgage, many of us assume the best thing to do is call a list of lenders, ask them for their interest rates, compare the results, and go with the cheapest option. I know this because I witnessed it all too often during my experience in the industry. Unfortunately, if you’ve been through the process before, you’ve probably realized this doesn’t work out the way you’d expect. Not only is it challenging to pry information out of a lender, but there are far more factors to consider than the mere interest rate, closing costs, or APR.

Furthermore, companies that offer cheap interest rates right off the rip are worthy of our skepticism. It’s important not to let an alluring price lead you to make a decision that will cost you time, money, and headaches down the road. Just as it’s equally important not to let a big brand name trick you into thinking they provide a reliable product or service.

To assist with this dilemma, and to avoid biffing up the financing on what is perhaps the largest single investment you will make, here are a few items to help you discern a good mortgage company from a bad one.

Service

Many companies rely heavily on massive marketing campaigns to acquire new clients but once you’re signed on they could care less about you. Other companies focus more energy on achieving positive reviews and customer feedback in the hopes that they will attract clientele organically. Though there is no definitive answer to which is more profitable, as a consumer, the latter is undoubtedly more beneficial. The worst possible scenario is finding out, after the fact, that you chose poorly.

In the mortgage industry, it can be very hard to recognize the difference. You might assume it’s as simple as reading a handful of reviews on Yelp; however, for a process heavily regulated and precarious as home financing, almost every company is going to have a litany of poor reviews, and it’s not easy to determine who has a greater average of positive outcomes this way.

Scandal

One easy way to find out if a lender is trustworthy is to ensure they are not being sued or under investigation for crimes, scandals, or other malicious behavior. This is unfortunately quite common in financial services, so a simple Google search of the institution is a good place to start. Remember that this is just a piece of the puzzle, though. Just because a company might appear clean, it doesn’t automatically make them trustworthy.

Prepayment Penalties

Prepayment penalties are a charge levied by the lender to discourage you from refinancing or paying your principal down faster. These are bad, and my advice is to avoid them. Companies that accept prepayment penalties do so for a reason. Whether it’s to keep you in a particular interest rate or program or to keep you from refinancing with another lender. Though they are generally applied only for a short period of time to protect a lender from losing money, there is rarely, if ever, a scenario where a prepayment penalty is good for a borrower. Additionally, in an ever-changing economic environment, it’s always good to keep your options open.

The good news is, it’s really easy to avoid prepayment penalties. As of now, lenders are required to offer borrowers a Loan Estimate (LE) before any agreements are signed. The LE is a standard format document designed to make it much harder for institutions to deceive borrowers by hiding things, like miscellaneous fees, balloon payments, or prepayment penalties. Note that on the first page of the LE it will tell you whether your loan includes a prepayment penalty.

Loan Tracking

This is a relatively new concept, and it comes with many different labels. As a result of the highly competitive nature of the lending industry, some companies are not only seeking to acquire new clients but are also taking new measures to retain their current ones. The idea of loan tracking is to retain clients when interest rates fall. By tracking the market and the loans they service, companies can inform clients when it makes sense to refinance into a new rate, program, or term.

In the end, it’s a win-win. You save money and your lender retains your business. As an added bonus, you don’t have to keep one eye glued on the market. With that said, always make sure you verify with other lenders that you are getting a good deal before agreeing to refinance with your current one.

Servicing

How is “servicing” different than “service” you ask?

“Servicing” has a very specific meaning in the mortgage industry. The company that services your loan is the company that handles your monthly payments, deals with your phone calls, operates your escrow accounts, and basically handles everything from the closing table onward. One thing many homeowners don’t realize, however, is that servicing rights are often transferred from one company to another. This means that even if you worked with Joe’s Mortgage Shack to close your loan, you will most likely end up paying your monthly bills to an entirely different institution.

This transfer of servicing rights can happen multiple times over the life of a loan. The implication being, even though you did hours of research to find the perfect lender, your loan could be sold off to the Spirit Airlines of mortgage servicing, and nobody wants that.

The good news is, there are companies out there that will commit to servicing your loan instead of transferring it. Finding these companies is always a priority for me, but they tend to carry a higher ticket price, so be sure to leverage other offers.

Source: benzinga

Financial Capital Group, LLC is a lender that provides home and commercial finance solutions for business, professionals, individuals and families since 1999. Our love and care for others is directed as much within our walls as it is outside of them. Our desire is to work together to meet the needs of our customers.

Financial Capital Group

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