Qualities of a Good Lender
- High Knowledge
- Good Loan Programs
- Low Price … as measured by APR. Get a CFPB Loan Estimate. See below
- Good Service … responsive, timely production, good communications
A competent and honest lender with loan programs that fit your needs is more important than the exact price … way more important than that last 0.125% on the APR.
Here’s a guide for understanding the … CFPB Loan Estimate
How to find that lender? Ask TNT! We’ve dealt with several dozen over two-plus decades. We will give you the name of more than one lender who has performed very well for prior clients. Call them all before making a choice.
Also – remember that the lender works for you. You are paying them to originate a loan. Your lender should be able to explain to you – in clear language – the different loan programs they are offering and how each fits your loan needs. If you don’t understand something, ask questions until you are satisfied you do understand.
If a lender is reluctant, vague or any any other way difficult in the early stages … move on.
The Loan Price
Concerning the loan “price” … the fees, rates, discounts, yield spreads, etc. … can be very confusing. You should have just two primary concerns:
- the cash you must pay upfront for the loan
… is the amount acceptable to you?
- the APR … this is a measure of the overall “price” of the loan.
Another important issue is timing. Loan pricing changes frequently. When you settle on a loan, get clear on the time period forward for which the quoted “price” applies. Once you are “under contract” for a purchase and are within 30 days of closing, the loan terms and conditions should be “locked” at no charge to you. With more than 30 days to “closing”, you may have to pay a fee to lock loan terms, but you may not want to do that if interest rates are trending down.
Although you do not need to know the following nitty gritty about home loans,
you very likely will find yourself very interested in these concepts
while on the edge of your seat awaiting loan approval,
or later if you have the misfortune of having payment difficulties.
Mortgage vs. Trust Deed
There are two parts to a typical home loan in Arizona … a note and a trust deed.
A note is basically an I.O.U. specifying the terms of the loan: the interest rate, if the rate is fixed or if it changes, the loan amount, the length of the loan, the payment frequency, etc.
The trust deed (also called a deed of trust) ties the note to the property… and … provides that the lender can sell your home – can foreclose – if you don’t make your payments. It makes the property the collateral for the loan.
In some states, including Arizona, people sign a note and a trust deed.
In other states, they use a note and a mortgage.
A trust deed and a mortgage are different documents that serve the same purpose – they make the property the collateral for the loan. The big difference between a trust deed and a mortgage is the foreclosure process … see “When Things Go Wrong” below.
Banks vs Loan Brokers
Used herein, a “bank” is a business that has the financial capacity to not only fund the loan but also to retain the loan in portfolio. This includes the classic banks, e.g., Bank of America, Chase, Wells Fargo, etc., and also other lenders who do this type of business.
A loan broker deals directly with the borrower, but is an intermediary having connections to several “banks”. The benefit the loan broker provides is a larger variety of loan programs for you to choose from. Brokers usually have names with ‘mortgage’ or ‘loans’ in the title.
There are lenders that can do both, having an in-house loan origination and funding department as well as a department that “brokers” loans offered by other lenders. If you’re not sure which type of lender you are dealing with, just ask.
So … Which type of lender is better? Whichever can provide the loan that works best for you … and you will need to talk with more than one to have a comparison.
Other Loan Origination Parties
- Broker or Banker … person licensed to originate loans
- Loan Officer … works directly with the public
- Processor … gathers information into computer files for review
- Appraiser … determines the market value for the property
- Underwriter … ensures the loan complies with industry and company rules
.. most loan hangups occur with the underwriter
- Closer … creates the document files
… sends loan document files to escrow for printing and signature
Escrow “Fedexes” documents back once signing is complete
- Funder … performs quality control for documents, signatures, etc.
If all is correct, wire transfers funds to escrow
Typically the first three above are in an office convenient to the borrower – you. Appraisers are independent from lender offices but will work in the same metro area. The last three may be anywhere in the USA.
Some lenders advertise that they are an “entirely in-house” lender where all parties except the appraiser work in same office. This can cut the process down by a day or so. It also makes it more likely that the underwriter is using the same “rules” as everyone else in that office.
Pre-Qualified vs. Pre-Approved
A pre-approval is a really big plus for success in purchasing a home in Arizona … not just pre-qualified … pre-approved.
With pre-approval, a lender has committed to you in writing for a certain type of loan for a stated amount of money to purchase a home. Sellers should be more confident of buyer capacity with pre-approval.
With pre-qualified, a lender has started the process of approval at least to the point of giving some level of assurance that you likely have the financial capacity to complete the purchase. But the Pre-qualification form needs to be examined carefully. Many are issued with little more than a 10-minure phone call for the qualification process.
You are wasting your time home shopping before you have at least a Pre-Qualification-Form in-hand, and preferably a “Pre-Approval” letter.
When Things Go Wrong
Sometimes bad things happen to good people. Whatever the cause, if you stop making loan payments, the lender has the right to “acquire” ownership of the property and then sell it to get their money back.
As previously discussed, (1) the trust deed makes the property the collateral for the loan and it specifies the process by which the lender can take ownership, and (2) the note is the promise to pay.
There are three parties to a trust deed:
- borrower, called the Trustor … this would be you
- lender, also called the Beneficiary
- and a Trustee … usually a title company.
Here’s the foreclosure process:
- You sign and give a note and a trust deed to the lender
- Lender gives you money by funding your home purchase
- You also sign and give a “bare title” document to the Trustee
The “Bare title” document gives the Trustee the right to sell the property if the note is in default.
- If are in default for payment, the Lender can direct the Trustee to record a “Notice of Default and Trustee’s Sale” (NOTS), and to send notice of the NOTS to you and to anyone else that has a recorded debt on the property
- The NOTS starts a 90 day period called a right of reinstatement, where you can pay the late payments and late fees to the Lender and stop the foreclosure.
- On the 91st day or any time thereafter, the Lender can instruct the Trustee to conduct the sale. If you, or your Realtor®, have been working with the Lender to find another solution to the situation, the Lender may elect to delay the foreclosure sale.
- If the property goes to a foreclosure sale, that is done as an auction conducted by the Trustee either on the Maricopa County Courthouse steps or the offices of the Trustee, as specified in the NOTS.
For information, guidance, services, questions …
Give us a call! We’re here to help.
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Call today! You’ll be really glad you did.
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