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Choosing the right mortgage lender is like selecting any other business professional. When you take the advice of your stockbroker, you do so because you believe that the broker deserves your trust, and you feel confident that person will give you sound advice on how to invest your money wisely. Look for these same qualities -- honesty and competence -- in a mortgage lender. Keep in mind that it´s your money on the table in this transaction. Referrals from people you trust remain the best way to find potential mortgage lenders. Ideally, the people you ask will have recently shopped for a mortgage or can refer you to reputable people in the mortgage industry. Ask your agent, tax advisor, attorney or financial consultant for referrals. Another referral source is friends, relatives or neighbors who have bought and sold a few homes over the past number of years. You will need to do some comparison shopping, so don´t be shy about asking for referrals; it will save you time and money. Whenever anyone gives you a referral, ask why they recommend that person. Don´t automatically assume that lender will be the right one for you, though. You want to choose someone who is knowledgeable, provides good service and offers competitive rates and low fees - not just someone´s next-door neighbor.
It is very difficult to wade through the myriad of options and regulations to determine the best mortgage for you. Mortgage lending is a specialized business with programs, rates and fees that change rapidly and vary widely. When you are ready to commit to taking out a mortgage, turning to an expert will put experience and knowledge on your side. Learn what types of mortgages to look for, what questions to ask potential lenders and even what information you must present to a potential lender. Your reward will be making the right decision on the largest purchase of your life.
You will need answers to many questions. Choose a lender who will take the time to explain to you the variety of loan program options available and to assist you in making the right choice among those options. You need to feel comfortable that you will work well together. You can start with these questions.
What types of loans do they specialize in? Do they specialize in financing the types of real estate you intend to purchase?
Do they have a local underwriting capability? This may help you get a quick answer when you ask about qualifying for a loan.
How competitive are their rates? After comparison shopping, you´ll know the answer. Be careful about a lender who quotes rates significantly lower than everyone else´s. They may not deliver on the rate quoted, or the "low-rate mortgage" may have large fees or prepayment penalties attached, thus offsetting the attractiveness of the lower rate.
During your interview, pay attention to whether the loan officer openly answers your questions and discloses fees. Once you´ve formed your list of a few potential candidates, ask for customer references. Call the customers to ask how the lender handled their loan, using the above questions as a guide. Ask if the lender promptly returns phone calls and answers questions correctly, produces loan documents quickly and accurately, and honors commitments. This may seem like a lot of work, but you don´t want to find out that you picked the wrong lender a week before closing.
In sum, find a capable and knowledgeable lender through referrals. Look for overall good customer service. Remember, don´t just shop for the lowest quoted rate. "Quoted" lower rates do not guarantee the lender´s ability to get your loan approved. You must consider not only the interest rate but also the overall terms of the mortgage and the lender´s likelihood of honoring the quotes given.
Keep your decisions logical and on track, too. Search for a lender who will best meet your needs. Don´t necessarily get your mortgage from a local or national bank just because it handles your checking account or your car loan.
Alternative Sources for Mortgages
You have plenty of alternatives in shopping for a loan. Your options include independent mortgage brokers, banks, savings and loans, credit unions and corporations that specialize in offering mortgages through the Internet and telemarketing. Throughout the process of actually looking for a lender, keep in mind my earlier point: Your long-range mortgage interest expenses will cost more than your house. You must be very focused on getting the best possible mortgage, one that meets yourrequirements and objectives. In the following section, I offer brief descriptions of the various types of institutions and individuals involved in the mortgage business.
We personally recommend using institutional lenders -- banks, savings and loans, credit unions or mortgage banks -- that offer local processing, underwriting and closing of mortgage loans. In many cases, this could be a large lending institution with a nationwide presence that still has the ability to process your loan at the local level.
The major reason we suggest this avenue is that when an institutional lender issues an approval letter -- a letter that states they will approve a loan for you up to a certain level -- the loan has already been underwritten and there is a commitment to lend the money. In the Northern Virginia real estate market, having an approval letter is absolutely essential for the home-buying process. Other mortgage lenders generally do not offer this service.
Large mortgage lenders have well-trained, knowledgeable loan officers. They usually are as informed as the typical mortgage broker. They also, in many cases, can act as a broker if necessary.
Although we prefer our clients use these types of institutions when obtaining a mortgage, the reader should be aware that you still have to do your homework when selecting which institution to use. There can be a downside if you don´t select carefully. For example, many large institutions that have hundreds of branches use a central facility to process their loans. But large centralized processing centers are not an advantage, as their operations can be cumbersome. If the processor in that central facility needs more information about a loan, that person will call the loan officer, who will then call the client. If the processor doesn´t approve a loan, the loan officer can repackage the loan for reconsideration. Look for a "local" or "in house" underwriting and closing department. In this scenario, your loan officer has direct communications with the decision makers. This would be the best situation, because your loan officer retains a certain amount of control.
The loan officers of most companies are usually paid a percentage of the mortgage loan amount, but some are salaried employees. If they are salaried employees, they have little flexibility to negotiate rates; if they are commissioned, they have much more latitude. Other expenses, such as underwriting or document fees, can be waived, so check with the manager. Because most financial corporations are well known, you probably don´t need to delve into their history. Do make an appointment to meet the loan officer in person, though. Be sure to ask the general questions noted earlier as well as the questions listed below.
How does the loan officer receive compensation?
If it´s by commission, ask the loan officer if the company offers bonuses for certain types of loans. (For example, the loan officer may get a higher commission by selling a loan with a prepayment penalty.)
If the loan officer receives a bonus for certain loans, ask which ones. Make sure the loan officer understands that you will not consider any of those programs.
Independent Mortgage Brokers
An independent mortgage broker does not work for any specific bank or lending institution. They are an independent contractor who will be able to place your mortgage application with a wide variety of corporations. A good independent mortgage broker can help you navigate the sea of confusion, counsel you on loans from different "wholesale lenders" and save you time and energy. Since independent brokers are not directly employed by banks or corporations who have money to lend, they have more choices of loans, especially for first-time buyers. They can take advantage of rates offered by out-of-state banks, for example. A bank must be licensed to operate in a state, but they can work through a mortgage broker as a wholesaler, which gives independent brokers broader options. Independent brokers generally get paid by receiving a commission from the bank that accepts your loan -- and by you, through possible points charged on your loan amount. Information and facts that would take the borrower hours to research are at the mortgage broker´s fingertips and are a part of his or her everyday world. A good broker will be intimately familiar with the dynamics of the mortgage loan market. That person can advise you on when to lock in a rate, whether a fixed or adjustable rate will be the best fit, and how to frame or package your information so that reputable lenders will likely approve your application. Independent mortgage brokers shop loans among many wholesale lenders, so they know which lenders specialize in what the client wants, and they won´t waste time trying to approve your loan with the wrong lender.
Having made those positive points, we should quickly add that there could be a number of drawbacks involved in dealing with an independent mortgage broker. An important issue is the time it takes to identify that good independent broker. You have to check referral sources thoroughly. Many brokers come into the mortgage business during a "boom" and are gone in the "bust." If you decide to go with an independent broker for your mortgage needs, make certain that person has been in the business for a long time and can provide verifiable customer service.
Another downside to using independent brokers is that they have no "in-house" underwriting (the process that actually approves your loan). They are also not in charge of the preparation of documents needed for the final settlement, nor are they accountable for the issuance of approval or pre-approval letters, which are so important in the negotiation process of buying a home. Although a good independent broker will work hard to get the client´s loan approved, the decision to approve or reject an application does not lie with that broker directly. Finally, they are last in line when it is time to get your loan underwritten or closed. A bank or similar institutional lender will always give its own branch retail sites highest priority. Only after those sites are accommodated will the bank review and work on "brokered loans." In a fast-paced environment, brokered loans don´t always close on time and often have additional mark-up charges that can vary from 1 to 3 percent of the loan amount.
Some wholesale lenders push certain loans to independent brokers and pay them a higher commission for selling those loans. Finding a lender you can communicate with can help relieve you of this worry. If you decide to use an independent mortgage broker, besides the questions raised earlier, remember to ask these additional questions.
What is the mortgage broker´s experience, education and expertise?
How many loans has the broker funded in the last year? How many were approved or denied? Choose a lender with a high approval rate; that person knows how to solve problems and take care of a client.
How long does it take to process a typical loan?
How much time will it take for the loan to be "underwritten" so you can get a final approval?
How is the broker compensated? Even if the person is not legally obligated to tell you, they have no reason to skip the answer because the final loan document will disclose the broker´s compensation. All of your questions need satisfactory answers.
Telemarketers and Postcard Advertising
In your search for a lender, you will find plenty of candidates. We urge you to exercise caution with companies that use call centers to market their mortgages. These companies may advertise their phone centers or may call you at home to try to sell you a loan. They have little accountability, and their employees usually have limited knowledge. They often are not skilled in the nuances of mortgage approval. Do you want such an important expenditure to be handled by someone who is not a trained professional?
Employees of call centers may claim that they can get anyone approved for a loan, but at what price? People have been known to pay considerably more in closing costs and interest rates on a mortgage with some of these companies. This could mean tens of thousands of your hard-earned dollars. In general, it is in your best interest to avoid such marketing ploys and consider some of the other alternatives discussed above.
Finding a Loan on the Internet
Before the Internet, financial information and research materials were only available to the public during regular business hours. Now vast amounts of information are available 24 hours a day -- all at the touch of a mouse. This phenomenon has taken the pressure off mortgage shopping and can help you ease into your search for the right lender and the right mortgage. As a research tool, the Internet offers tremendous opportunities to expand your knowledge about mortgages at your own pace and on your own time. Information that in the past was only available to lenders is now accessible to everyone. You have access to up-to-date rates, for instance, without calling a lender.
Undoubtedly, you would have to make a lot of calls to get the same information that you can quickly get online. Even so, we recommend caution! Today, with an innumerable number of sites about mortgages, information overload can make a confusing process even more perplexing. With so many choices, how do you find the mortgage that will best meet your needs? Again, the Internet is useful for information, but it cannot interpret that information. At the end of the day, at least from our perspective, you should take the information that you learned from the Internet to a professional you have confidence in, one who can help verify that information and interpret it in light of your specific situation.
An online lender or mortgage company may not give you full service. Some companies may require you to provide some personal information before they will give you a quote. In the early stages, when mortgage shopping first became available online, most companies using this medium focused on price as a way to attract customers. They really did not offer quality service. An incompetent lender could even cost you money.
Efficiency and timeliness can best be achieved with a personal, hands-on lender. There are many stories about lenders who use low "come-on" rates and then increase the rates just before closing on the mortgage loan. Because we only use lenders I know and whose professionalism I have confidence in, we have not had problems with any online lenders for the clients I have represented. But sitting across the settlement table in many transactions over the years, we have seen cases where the "other party" has had serious issues with online lenders. A lender can mislead you about rates, but it´s much easier for this to happen when you´re not looking the lender in the eye.
Most mortgage sites offer free listings to lenders, which makes them similar to online Yellow Pages. Some offer higher visibility listings -- for instance, at the top of a section, or in a special typeface -- if the lender pays a fee. To the unsuspecting buyer, these companies may seem more prestigious or somehow better than others. So how do these sites get their lenders? Is there any quality control to check that a participating lender follows through on its promises?
The reality is that there isn´t a great deal of accountability with online lenders. There are no guarantees. You can try clicking on the area of the site that solicits lenders and review the site´s criteria, but this doesn´t mean that there aren´t other means of solicitation. Ultimately, you will have to verify the facts and check on the legitimacy of the lenders.
To figure out whether securing an online mortgage is the way for you to go, let´s look at a few points. In this complicated and extremely important transaction, you want to find a lender you can trust to deal honestly with you, one who knows the mortgage business. The same questions you´d ask a lender in person need to be asked of an online lender.
In which types of loans does the lender specialize? Remember, you want a lender who has experience with the type of real estate you want to buy,
How does the approval process work?
How competitive are the rates? Again, please be suspicious of anyone who quotes rates significantly lower than everyone else´s. As we discussed, these rates may have penalties attached -- or the lender knows that you won´t qualify for the lowest rate, and you will end up with a much higher rate.
Does the lender openly answer questions and disclose fees?
Is the lender familiar with loan, appraisal and settlement companies in our area? Every state deals with these items differently, and if the lender doesn´t know how to close a loan in your state, you could be in for a major disaster -- including possibly losing out on a house or having to switch lenders at the last minute. In fact, this is the most frequent complaint about online lenders. When it comes to the details, a lender in Florida may have no idea how to get an appraisal in Northern Virginia or how to work with a local escrow company. This can be a major deal killer, so make sure that the lender has offices here in Northern Virginia.
If you are convinced that you want to get a mortgage through the Internet, we advise you to ask for the names, numbers and dates of the last few clients the lender funded. Check those references. Verify with the client that the information the lender gave you is correct. Some considerations and questions are:
What level of service does the lender offer?
Does the lender have the time to answer questions and address concerns down the line?
How much help will the lender give you?
Does the lender simply process your application, or will the representative work to get you approved?
Is the lender experienced enough to help you decide the best time to lock in a rate?
What are the security and confidentiality policies of the lender? In deciding on an online lender, you will need to ask yourself if you feel comfortable sending reams of personal and financial information over the web.
One of the biggest questions (and the one that draws most people to shop for a loan online) is: Do you actually save money? There usually is not much variance in the interest rates you´re offered, because they are all controlled by the same market factors. This means that the same rate online can most likely be found with a good lender that you can talk to in person and with whom you can establish a solid working relationship. Much of online mortgage advertising emphasizes rates. While rates are important, keep in mind that knowing what kind of loan you need is just as crucial.
Some online brokers may take a smaller commission for processing your loan online. Even so, you will probably want to have the comfort of knowing the person responsible for handling your confidential and important paperwork. Some sites boast that they will save you thousands of dollars, but there is no guarantee that they will follow through at crunch time. They may not deliver the prices they advertise. Also, it is essential that you are aware that online mortgage brokers can "shop your loan" through several financial institutions. These institutions will do a credit inquiry; once the credit inquiry is complete, a rate offer would theoretically be made based on your credit scores and profile. Remember, though, with multiple credit inquiries, your credit score may fall significantly. This lower score, in turn, could result in your not qualifying for a mortgage at the end of the inquiry trail even though you may have qualified for it at the beginning of the search!
The Northern Virginia area offers many excellent and established lenders with great reputations. In the final analysis, people feel most satisfied when they have dealt with a human being face-to-face, someone who will procedure. Given the importance of this transaction, a small saving on a loan can´t compensate for the accountability and personal service given by a broker you work with in person. A good broker in your area is intimately familiar with the local market and will know how to serve you.
As a tool for research during your preparation to take out a mortgage, we definitely encourage you to use the Internet. Explore rates and take stock of where you are with the type of loan you want. When it comes to applying for a loan, however, let your instincts guide you to choose a lender with whom you can form a personal relationship and whom you can trust. Most buyers want a person who cares about the outcome of the loan. The emotional factor comes into play again here. A good broker will understand the tension that can build as the client waits for loan approval - and will know how important approval and timeliness is to the client.
Take the knowledge you gain from the Internet to become better informed about your options, and use it as an adjunct to the information a broker in your area gives you. We don´t suggest that you use the web to replace shopping for a mortgage in the traditional way. If you honestly think you´ve found a great deal online, find a reputable lender in your area and negotiate to see whether that lender will match what you´ve found. Most likely, having a serious, informed buyer will encourage the lender to meet your price. (If the lender cannot match the rates, we would be very suspicious of the rates quoted online.)
Don´t ever forget that this is your money-and taking out a mortgage will be the largest purchase you will probably ever make. You have every right to shop around and ask questions before you hand over your money. Know which type of loan you are looking for and what lender specializes in it. Find a lender you feel comfortable with, one to whom you can talk. Make sure that your questions are answered to your satisfaction. Inform yourself of your options, and accept professional and experienced guidance; ultimately, though, you must decide what´s right for you.
We're All About Service and Results
Pat Paulas, Drew Paulas and Associates, Realtors Loudoun County Real Estate and West Fairfax County Real Estate
Prudential PenFed's TeamWorks 11864 Sunrise Valley Drive, Suite 101 • Reston, Virginia 20191 703.909.6333 e-mailtheTeam@eLoudounHomes.com
Mortgages You need to do some comparison shopping, so don´t be shy about asking for referrals; it will save you time and money in the long run.
More Mortgage Resources More information is always better than less when it comes to financing your home.
Real Estate: The Ins & Outs Our Continuing Series on How it All Works.