How to shop for a mortgage.

This post is based on my own experience. I've been successful at buying and refinancing mortgages by using a combinations of national providers, mostly Wells Fargo, and an internet bank. I cannot recommend any specific provider and you need to do due diligence before using any particular lender, but this might help.

I used to believe in the "referal system". Here a friend or colleague gives you the name of a broker and you are off. I used this once for a friend at work. My cousin, a budding real estate investor, reccomended "Frank". He's great, always the lowest rate and so profesional. I assured my co-worker that Frank was her man. About six months later she came to me with the lender story from hell how he had ruined her refinance and disappeared. I guess he happened to melt down right after I had recommended him.

When I buy a new house I usually go with the lender's financing which seems to be Wells. The problem is that there intial rate is so unbelievably high that it is an insult to your intelligence. The second thing I do is go to www.americaninterbanc.com. I have used this online company for several transactions and have always been happy. They have the lowest rates and close on time. The problem is they require a sizeable down payment, only accept full docs and pristine credit. Once again, you have to do due dilligence, but I have had a good experience.

Back to the techinique. After getting the builder's ridiculous rate, I check American Interbanc and then come back to the builder with that. They usually match the rate and add other incentives. Voila, a decent rate. But be careful... you can't trust these good faith statements. With almost every loan, at the final closing, they try and jack the rates and drop incentives. You must read every line of your closing statement and demand the rate you have been promised.

I suggest never giving points. I have used a "point down" which is refunded later deal. Be careful, as this can lock you into the lender.

Currently 5:1 ARMs and 3:1 ARMS are almost no better than 30-year loans. In this situation, its stupid not to take the 30-year.

Watch out for all of the fees. American Interbanc states their fees. Many brokers won't. I called a radio station mortgage banker once and in addition to alot of BS about costly "no-point" loans, they wanted to charge over $10,000 in closing costs. This is predatory.

Do not get any loan with a prepayment fee.

Refinancing is similiar to new home purchasing but it seems to go a little smoother and you don't have the pressure of closing. You can always pick another lender. Do not pay the appraisal up front. It is easy to get stuck with this if the lender or broker tries to change terms. Either pay it at closing or better, get them to pay it.

Home equities are a good short-term option. It's good to have them as a back-up in case of a rainy day, however, unused credit on a home equity can affect your credit and ability to get other loans. Pay no fees and watch out for prepayment. I have used wells which will waive the fee and although there is a $500 prepayment, it is waived after 3 years and they will refund it if you close and open another home equity either on the same house or another one within six months. Talk to you bank manager. Citibank sends me offers all the time for lower home equity rates/ no fees but I haven't personally used them.

"Liar loans" are stated income loans where you state income you don't have and don't admit to a investment property. It is a crime to lie on a loan application so don't do it. However, if you legitimately can claim income, for example from real estate investments and if you are buying a second home that later converts to an investment property, it is not a big deal. One problem are the inpound accounts. You will need to change insurance, so the lender will be tipped off, however, they usually don't care.

Things may be changing with all of these high-risk lender failures. It is probably harder to get financing now. I would recommend starting the process with two or three lenders at the same time. Figure out the best rates. Go ahead with all three until you get to a committment point, like paying for an appraisal. Go for the lowest rate, closing costs, and who you feel is on the ball and can close.

Final obstacles can be verifying your employment, lender asking you to cash out or close other loans, appraisal problems, etc.

Good luck on you loan!

Be well,

Dr. Doug