How to Shop for a Mortgage

Getting Pre-Approved

You should be able to consult with several lenders or mortgage brokers to discuss loan options without being charged more than the cost of a credit report (usually around $20). Many will not even charge you for this unless you complete your loan through them.

Pre-Approval vs. Pre-Qualification

A lender can get some idea of what you might qualify for just by speaking to you over the telephone, and it’s not uncommon to be issued a ‘pre-qualification’ letter after a brief conversation. However, in order to present yourself as a serious homebuyer you should obtain a ‘pre-approval’ letter, which means that your loan consultant has actually checked your credit and seen written documents verifying your financial situation. Again, this should not cost you more than the price of the credit report, and it does not commit you to using that lender.

Banks Vs. Mortgage Brokers

When you walk into a lending institution like Bank of America or Washington Mutual you have the option to choose from their array of loan products. Another option is to go through a mortgage broker, who shops around and finds the best loan programs offered by various different lenders, including some of the large banks like those mentioned above. Sometimes brokers are also lenders, so they can either broker out the loan or do it in-house (which can allow them to be more flexible.)

My favorite loan source now (after years of searching for a combination of low fees, honest approach and great service) is a mortgage broker:

Liz Fudacz
Vice President, Front Street Mortgage
(425) 392-5566
liz@frontstreetmortgage.com.

By the way, I don’t get any perks for sending clients to lenders, and in fact brokers like this are usually never even able to refer new business to me because most of their clients are referred to them by agents to start with.  So in other words, the only reason I recommend her is that she’s a great mortgage broker.

Consider Your Options

A good loan consultant should be able to offer you several different financing options, and clearly explain the differences between each one.

If you are putting less than 20% as a down payment, ask if you have alternatives to paying Private Mortgage Insurance (PMI). It’s often possible.

Compare Apples To Apples

You should be given a written ‘Good Faith Estimate’, which allows you to see what charges are associated with the loan. This can be a useful basis for comparison. While Realtors are not supposed to act like experts in financing, most should be able to look at your Good Faith Estimate and at least have an idea of whether the costs are reasonable or not.

Go With Someone You Understand

Finally, be careful to choose a reliable lender! This will save you money in the long run.  A word of warning is that even if someone is referred to you by a friend you still need to proceed with caution - my biggest lender nightmare story came about when some clients of mine started working with a “trusted lender” by their friends.  At closing they ended up refusing to sign the documents, fortunately for them – it was a terrible deal and not what they had agreed upon.

Fortunately we were able to extend the closing, and Liz Fudacz got them into a much better loan – but they could have lost the house, and their earnest money!