• Gary Sandler
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    Published 13 December 2020

    When Las Cruces renters Steve & Mari decided to purchase a home, their first hurdle was to research their financing options. What size down payment will they need? Will there be closing costs? How much income will they need to qualify? And the big question: which lenders offer the lowest combination of rates and fees? It didn’t take long for the couple to realize that shopping for a loan can be a daunting task.

    So, where do buyers obtain the information they need in order to be informed mortgage consumers? The simple answer is from Realtors and lenders. Which source is the better choice? Neither, when they’re considered individually — both, when they’re considered together.

    Some Realtors don’t care to get involved in the financing side of transactions, while others make it their business to personally walk buyers through the loan process. On the lenders’ side of the fence, some loan officers openly share their full array of loan “products” with prospective buyers. Others follow corporate directives to push particular mortgage products even though they may not be the most cost-effective choice for a particular buyer.

    This is where the lender/shoe store analogy comes into play. Lenders and shoe stores are both retailers. One sells shoes, and the other sells money. The key fact is that not all shoe stores carry the same shoes, and not all lenders carry the same loans. Huge mega-banks often carry scores of loan products, while smaller lenders, such as credit unions, carry just a handful. And even if two “stores” offer identical products, they may not offer them at the same price.

    The first step in the process is to measure the size of your mortgage like you’d measure the size of your foot. Will it be a tennis shoe, work shoe, dress shoe or boot? In other words, will you need the money for a short time or a long time, do you have a large down payment or will there be no down payment at all? Once you’ve defined the type of shoe that will do the job, you’re ready to move on to what I call window shopping.

    Effective shopping begins by discussing your needs with as many lenders as possible until you’re comfortable that you have a handle on which are the most open and transparent. The next step is to apply to at least one lender. Should you allow multiple lenders to request your credit report? According to Fair Isaac and Company (FICO), “consumers searching for a mortgage or auto loan are not penalized for shopping around for the best rate.” In fact, the software “counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry, and ignores all mortgage and auto inquires made in the 30 days prior to scoring.” Still, it’s a good idea to keep the number of inquiries to a minimum.

    Once a loan officer has had an opportunity to review your application and your credit, he or she should be able to discuss the loan or loans that appear to fit your needs. Should you obtain a 30-year loan if you intend to live in the property for four years? Maybe, maybe not. Once you’ve identified the loan “product” that appears to best suit your needs, ask the lender for a loan estimate or fee worksheet. The information will outline the costs, payment terms and other features that will apply to the various loan products.

    After comparing the estimates from the various loan “stores,” most consumers are in a position to obtain a Conditional Loan Commitment from one or more of the lenders. The Commitment will contain language indicating that the lender has reviewed your credit, income and debts, and that you’re qualified to obtain a loan from their company.

    The Loan Commitment is one of the key documents buyers need when negotiating a good price with a seller because it tells the seller that you’ve done your homework and are someone whom he or she should take seriously. The final step in the process comes once you’ve contracted to purchase a property.

    With a purchase agreement in hand, you can ask some or all of the previously visited lenders to provide a loan estimate that is specific to your transaction. It is at that moment that you’ll be in a position to pit one lender against another. Each can compete for your business by submitting to you the best products they have to offer at the best prices they are able to offer them.

    Negotiating a good price for a property is important, but the cost of the money is even more important. After all, you’ll be thinking of your loan each and every time you write a check for your monthly payment.

    See you at closing!

    Gary Sandler is a full-time Realtor and president of Gary Sandler Inc., Realtors in Las Cruces. He loves to answer questions and can be reached at (575) 642-2292 or Gary@GarySandler.com.

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      Gary Sandler