As with shopping for the right home it makes sense to shop for a mortgage. Your payments will last for years so you want to make the smartest choice.
So you've decided to settle down in Northeast LA. You spent time searching for homes for sale in Highland Park as well as homes in Glassell Park and Eagle Rock. Choosing a home can be a lot of fun. Understanding how to choose the mortgage to pay for home, while not fun, is a vital task that requires homebuyers to perform their due diligence.
When buying a home, in California and elsewhere, a very important part of the process is actually “buying” a mortgage. You know the price of the home you are purchasing (or will soon enough), and your relationship within the sales transaction – with the Realtors representing you and the home seller – is very short term. Your “relationship” with the mortgage you end up with will last you many years. It pays to shop.
And let the buyer beware. While the lending industry has come under intense scrutiny and new lending regulations since the housing crisis of 2008, there still are ways of getting this wrong.
One important improvement that has come from the Dodd-Frank financial reform laws – after nearly 8 million homes went into foreclosure in the housing crisis (which was really a lending crisis) – is that the riskiest loan products are no longer allowed. This protects people from getting into mortgages they may not be able to afford, but it also makes getting a mortgage harder if your income, existing debt and credit scores do not fit the lender’s criteria.
Fortunately, whether you’re buying in Eagle Rock, Mt. Washington, Highland Park, Hermon or anywhere else in Northeast Los Angeles, what’s not changed is how much of a down payment is required: it’s usually about 10 to 20 percent of the purchase price, occasionally less.
So if the mortgage is what you’re going to be paying for years to come, how do you decide where to get your mortgage?
Say you want to buy a house in Glassell Park or Garvanza – or anywhere else for that matter – consider how there are four types of lenders, each with their own characteristics:
• Thrift institutions (i.e., Savings & Loans) – Largely created to provide mortgages, these are required by the government to have a majority of their assets in real estate. But the number of S&Ls were cut in half in the scandals of the 1980s, so these are less common today than a generation ago.
• Mortgage banks – These tend to be the biggest players and consequentially offer the greatest variety of loan products. The closing process is probably fastest through your mortgage bank, however it might also cost more than your other options with higher interest charges.
• Credit unions – These are similar to clubs and coops in that its customers own the institution and it is technically a non-profit. While the process for achieving the loan underwriting might take longer, they might also offer lower interest rates.
• Online lenders – Younger buyers who are comfortable with the nature of online-only borrowing might find these mortgage lenders their preferred choice. But just because they do not have physical offices doesn’t mean they lend at lower rates – the business of home mortgages is not fully automated therefore large staffs are still employed somewhere to work out underwriting and closings.
But perhaps you will instead work with a mortgage broker, who technically will search for the right mortgage for you. All well and good – the best of them will indeed find a loan package that is your best deal. But the training and credentialing of brokers is uneven. All are required to have either a real estate license (from the California Department of Real Estate) or a California Finance Lender (CFL) license. But while some even hold MBAs or are CPAs, others are awarded their titles (Senior Mortgage Advisor, Senior Mortgage Planner, etc.) based on the whim of their employers. Their jobs are to sell and the most productive sales people aren’t necessarily the most knowledgeable.
Bottom line: Shop around. Check out one company in each of the above categories – more if you have the time – to find out what you can before going through an actual application process. They should be able to give you a ballpark on what kinds of terms to expect. Then engage a mortgage broker if you wish and let her or him know about your preliminary work. Make it their job to find you something better.
Realtor Tracy King helps people buy and sell houses. But she is familiar with the process of finding lenders and is available to discuss that with you.
With over 30 years experience in helping clients buy and sell homes in Northeast Los Angeles, Tracy King has a depth of real estate knowledge that makes her the go-to for both the first-time home buyer and the seasoned real estate investor. When she's not holding open houses or negotiating offers, Tracy enjoys wine tasting, cooking, or planning her next trip to Paris. If you are looking to buy or sell a home in Northeast Los Angeles, contact the Tracy King Team at 626.827.9795 or email@example.com.