One title agent I spoke to said this is highly unrecommended. Your closing agent needs to be in good communication with the lender to make sure everything goes smoothly, and internet lenders are typically hard to get a hold of -- they often don't return emails or phone calls. Your closer may be unable to get the person who is doing the lending on the phone -- there is often a sense you are dealing with a "phantom" entity. Lenders and title agents tell me that with internet lenders, they never know if they going to get a closing package on closing day.
Thanks to legislation that was passed, lenders working at regular banks do not have to go through any licensure process to sit across from you and offer you a pre-qualification or a loan. In fact, this person may be fresh on the floor, and have very little experience in vetting applicants, and in searching out the best loan and lending assistance programs for you. Typically, banks also offer slightly higher interest rates than can be obtained from mortgage banks or brokers.
Mortgage Banks and Mortgage Brokers
Courtesy of legislation passed recently, mortgage banks and mortgage brokers are highly regulated, much more so than regular banks. While the lender at a regular bank is background-checked and goes through bank training, a lender with a mortgage bank or broker goes through the following licensure process:
- Background check and fingerprinting
- Mortgage licensure class
- Federal and state mortgage loan origination testing
- Continuing Education
Mainstream banks rely on their name to bring them business, not the reputation of the individual, therefore they can put inexperienced people in lending positions. Closing agents have a harder time working with big banks, because there may be no single person to directly call regarding the loan to assure the process goes through. These banks handle so many loans that the customer service aspect can suffer, and it may mean that your closing date can suffer as well.
Lenders in the industry tell me that due to the increase in and complexity of regulation, fewer people are entering the field. It is better to seek out a lender who has many years experience. Some of the mortgage banks have such a stable of experienced lenders that they can turn away many applicants from regular banks due to their inexperience.
A good lender will:
- Meet with you to give you assistance and guidance in preparing your finances to be ready to buy a home,
- Give you a solid pre-approval, using your W-2s or tax returns or income statements (not just "pre-qualify" you without any documentation),
- Gladly return your phone calls, meet with you, answer your questions,
- Work diligently with your agent and closer to ensure a smooth transaction,
- Get your paperwork to you within the required timeframes.
Credit Affected by Foreclosures, Short Sales and Bankruptcy
If your credit has bee affected by any of these, you can learn more about the time necessary to wait before you will likely be approved for a new mortgage. Click here for the document Waiting Times for Future Financing, written by Sally Settle, of Alerus Mortgage, which goes into detail about this.
MHFA (Minnesota Housing Finance Agency) and FHA Loans
The benefit to MFHA and FHA loans is that it may be easier to get a loan through them than through conventional lenders, and you may be able to buy a home with as little as $1000 down. While the interest rates are typically better with these types of loans, if you have a downpayment that is less than 20%, you will be paying an extra cost (mortgage insurance premium - MIP). This extra cost will tend to make your payment about the same as a loan with a higher interest rate.
The better credit you have and the larger down payment, more likely you will qualify for a better loan, that is lower interest and no MIP.
FHA loans also have higher standards for homes purchased. Some sellers are not willing to make repairs needed for buyers to qualify for FHA loans. Foreclosures and homes needing substantial rehab typically will not qualify for FHA loans.