It goes without saying that the Denver housing market is a little more complicated these days. Choosing a lender can feel at the bottom of your list of concerns.
Just two years ago, interest rates were below 3 percent; today they are hovering above 6.96 percent. Home inventory has been increasing but home prices are still elevated. As a result, it’s more important than ever to have a lender who understands your unique situation.
So just how do you go about choosing the right lender for you?
Whether you’re a newbie or a seasoned real estate investor, you’re sure to glean some knowledge from her remarks.
What should I know before looking for a lender?
Every buyer should understand how absolutely critical having a great lender on your team is. The lender that they choose very directly affects their real estate transaction and all parties involved. While many buyers tend to ask questions about rate, terms, and fees, which are completely justified, they fail to understand that their chosen lender’s credibility, reliability, and communications style is critically important to the seller as well. In this current market especially, sellers can and will eliminate buyers’ offers if they do not have a responsive and proactive lender on their side.
What is the optimal amount I should plan on for my down payment?
This is a tricky question, but as a goal, I advise my buyers to aim for 20 percent down on their loans. By putting 20 percent down, buyers avoid having to carry mortgage insurance which reduces their monthly payments by hundreds of dollars. Additionally, they are able to obtain a better overall rate and can compete in the market more effectively. Sellers do prefer to see buyers with larger down payments as it is perceived as a direct reflection of their ability to obtain a loan and the likelihood of closing the deal.
However, clearly, not everyone is able to put a substantial amount of money down, and in those cases, great lenders and agents can help you understand how to work around the potential shortcomings of low down payment loans in the market. Right now, buyers are able to get a conventional loan for as little as 3% down and VA loans can allow for 0% down in certain circumstances. Additionally, there are options for down payment assistance programs to provide additional funds if you qualify.
What’s the difference between being pre-approved and pre-qualified for a loan?
Pre-approval and pre-qualification are two very different things. In order to be pre-qualified, typically a lender will ask you questions about your income, debts, and credit scores in order to determine, with broad accuracy, whether you may be qualified to obtain a loan of a certain amount. Pre-approval requires a more scrupulous examination of buyers’ qualifications and typically requires a hard credit pull to review scores and debts as well as proof of income/employment.
In a market such as Denver’s, it is critical that buyers obtain a full pre-approval prior to submitting any offers on properties. This is the most effective way to demonstrate to a seller that you are not only interested but also are able to purchase their home.
What are the advantages/disadvantages of choosing a local lender or online lender?
I have clients ask me regularly about online or “big box” lenders. Typically these inquiries are sparked by an ad they’ve seen online or a “too good to be true” rate posted on a website. First off, I always encourage my buyers to investigate anyone who they think might best represent them. Emphatically, this means not only looking at rates and fees but asking questions like, “If I need to ask you an important question on a Saturday afternoon, who can I reach out to?” or “Will you be able to call the sellers’ agent on the other side when I make an offer to tell them about how well qualified I am?”
The answers to these questions are often some of the things that set local lenders apart. While many online lenders do have a higher volume of business and often lower rates because of it, they are unable to provide some of the critical services necessary for a successful transaction. A great rate on a loan only matters if you can manage to secure a contract and close the deal. Additionally, smaller local lenders are able to facilitate smoother transactions due to their knowledge of the local market and tightly knit teams who can communicate smoothly and efficiently. If you don’t know where to start, ask your Realtor about which local lenders have been serving their buyers well recently and give them a call.
How long does the process take?
The process to get pre-approved for a loan can move very quickly if you have the appropriate documentation easily accessible. Typically, it can happen within a few days. As far as the timeline from contract to close, that is highly dependent on a number of factors including the type of loan and a certain buyer’s lending qualifications, the specific lender’s teams’ abilities, and the buyer’s/seller’s preferences. Generally, loans can close in as quickly as 12 days or so but much more often run around 30 days. If desired, closings can drag out longer as well, but I would say that most often, loans close within 25-35 days of contract.
What additional fees should I be aware of?
Every lender will have fees tacked onto their loan. The most common fees are appraisal fees, processing and or underwriting fees, credit reports fees, tax service fees, and flood certification fees. Additionally, you should always be sure that you understand if there are any points built into your rate and/or if there are any origination fees associated with the loan. Chiefly, you want to be sure that when comparing costs, you are looking at apples to apples. This part of the process can feel daunting to some buyers and is a great time to call on your agent to jump in and help you discern what it all means.
Is it advantageous to check with my bank or financial institution on whether they offer home loans?
It’s never a disadvantage to check with anyone. However, many major financial lending institutions can be a bit harder to work with on a home loan. Their timelines are often slower, the red tape thicker and their teams can be much more dispersed. I have had deals with major banks become incredible headaches because of the miscommunication among large teams across the country or simply because we cannot reach the right person to clarify an issue. Also, always talk with your agent about the risks and benefits of choosing any lender. A great agent should have a lot to share about how this decision can very directly impact your ability to buy your next home.
(Editor’s note: This blog was originally published in August 2022. It has been updated and edited to reflect the current market).