Doing mortgage research can pay off

You may not have thought much about it. But choosing a mortgage lender can require nearly as much research and forethought as selecting a home. In addition to the allimportant interest rate, you want to take into account the size of the lender, the types of loan products offered and the nature of the application process. You might also want to consider lender reputation, whether via word of mouth or online review. There’s also the factor of whether you have a pre-existing relationship with the lender.

In the new construction arena, the builder will often make available an internal source of financing. Other options include credit unions and local, national or regional banks. In addition, there are entities

that confine themselves to home mortgage loans.

“The bottom line is the buyer needs to do their research,” says Travis Hill, broker and owner of New Home Negotiators Inc.

Many builders will offer you the option of in-house financing.

“The advantage when you’re working with ... an in-house lending department,” advises Hill, “is that

lenders usually have an incentive that they’ll offer.” For example, “it may be $5,000 toward the closing costs.” In addition, a buyer may be able to apply an available incentive to options or upgrades from the builder’s Design Center.

Builder familiarity with lender processes can also inure to the benefit of the buyer.

Because of the builder’s direct contact with the lender, notes Hill, the escrow and closing process can be

easier, from the builder’s perspective at least.

But staying open, doing your homework and shopping around can also be to your advantage.

“The flip side is that the buyer can sometimes get a better loan program or interest rate from an outside lender.”

Hill notes that “if you have a really good credit score and low debt,” a large mortgage lender “may have the capability of putting a lot of manpower behind one loan.” This approach

allows the company to streamline and speed up the approval process.

A larger lending institution might also be positioned to offer you greater choice as to interest rate and loan product.

According to Hill, such a lender may “broker out to a number of banks,” the better to offer you the most advantageous terms.

On the other hand, he asserts, while “large outside lenders may offer more loan products than the typical in-house builder’s lender can

provide ... sometimes it’s hard to beat the inhouse interest rate and incentive.”

Smaller lending institutions are not to be overlooked, however.

“Credit unions sometimes have some of the best interest rates that you can find,” advises Hill. “But they (might be) very limited on the loan product.” For example, a credit union may only be able to provide an FHA, conventional or VA loan.

When it comes to qualifying, asserts Hill,

“Sometimes (credit unions) have looser guidelines than the bigger banks.”

The upshot, according to Hill? “Savvy buyers will want to go with what’s going to cost them less in the long run.”

As with every step in the homebuying process — whether it is your first purchase or your fifth — selecting a lender will require research. A thoroughgoing and deliberate search will help ensure you find the best option for your new construction purchase.