Not a shock...I meet a lot of home buyers. When we get to talking about how they will be financing their new home, which usually involves a mortgage, many folks feel fairly well versed on the home buying process. However, I notice there are usually still quite a few gaps in their knowledge about what to expect when financing a home.
I thought I would write up a blog this week addressing some things you may not know about your lender (or potential lender). I've noticed that a lot of home buyers don't learn these facts until they are far down the path of applying for their mortgage or even after they close. I would like to help you avoid any unpleasant surprises!
- Your mortgage company will probably sell your loan after you close - yep, don't get too attached to your mortgage lender! Most lenders will not hold onto your loan for very long. In fact over the course of several years, many difference companies could own the servicing of your loan. But don't worry too much about this since your interest rates, monthly payments, and other terms, will all stay the same. Read more about why lenders do this here.
- Lenders can help you fix any credit errors - if you have mistakes on your credit report, consider asking your lender about "rapid rescoring". This is a fee-based service designed to accelerate repairs to mistakes on one or more of the accounts listed on your credit report. According to NerdWallet, "Rapid Rescoring is a service some lenders offer to help you get credit report errors fixed and your credit reports updated to improve your credit score. This process happens more quickly than if you were to work directly with the credit bureaus — sometimes within a few days." I actually love this concept so much I wrote another blog about it here.
- Lenders may require mortgage insurance, but it's not to protect you - if you have an FHA loan your lender will require that you pay an additional monthly fee on top of your mortgage called Mortgage Insurance Premium or Private Mortgage Insurance. MIP or PMI (for short) are insurance policies for your mortgage loan in case you ever default on the loan. According to The Lenders Network, "mortgage insurance is not a bad thing because it’s the reason FHA loans even exist in the first place."
- Your lender won't require perfect credit - almost no one has perfect credit, and lenders understand that. They are looking for several indications that you will be a low risk borrower, including steady income, pay your bills on time, and also a minimum credit score of 620 for conventional loans (and maybe even as low as 500 for FHA loans). Each lender will have their own requirements, so be honest and upfront with him or her. If you hold back any information or stretch the truth in the beginning, then it could come back to haunt you when it comes time to close (or not close) on your loan.
- If your lender is local, your offer may be more competitive - if you submit an offer to purchase a home in Colorado, you will have a higher chance of getting your offer accepted if your lender has a local presence. Sellers want assurances that your lender understands the Colorado market, including our nuances (presence of radon, treatment of water and mineral rights, timelines for appraisals, etc.), so that there are no hold ups in the loan process.
- You don't have to use the lender that pre-approved you - getting pre-approved by a lender is certainly the first step towards buying your new home loan, but this doesn't require you to close with that lender once you’re ready to purchase. I always recommend shopping around to make sure you have the best rates for your particular situation.
Starting to look for a home? If you would like to see housing data for Boulder County, there are plenty of statistics to check out in such as "Days on Market", "Total Inventory" and "Newly Listed Homes". We track all these market statistics for Single Family Homes (SFH) for most of neighboring towns on a monthly basis, including Louisville, Erie, Lafayette and Superior. At Louisville Realty Associates, we have the experience, energy and depth of knowledge to help you list your home for the best price. You can reach us anytime at email@example.com.