Selecting the Right Lender

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Picking the right lender will affect both the strength of your offer and how much you end up paying for the house. According to the CFPB, 47% of homebuyers do not shop for mortgages, which is a costly mistake.  Definitely get quotes from different lenders and compare.  You can also negotiate with your lender on the rate.  When comparing different lenders, below is a simple framework I use with 1-4 being the most important:
  1. Interest Rate: this is the rate that you'll be paying every month to 'borrow' the money and what you write off on your taxes.
  2. APR: this rate includes all fees such as closing cost, points, loan origination fees, etc, on top of the interest rate. This is a more accurate rate to compare than interest rates alone.
  3. Relationship Discounts: most lenders will reduce your interest rate if you bring a certain amount of money over to their bank e.g. transfer $250K in savings/401K/stocks will reduce your rate by 0.125%.
  4. Time to Close: how long will it take your lender to finish processing your loans and get the documents to escrow.  Ask for time to close with and without credit approval (see below). The faster it takes, the more attractive your offer is.
    • Credit Approval/Underwriting speed: this is the time it takes for the lender to approve you as the person if you have not found your house yet. 
  5. Lender Credits: lenders will give you credit towards closing which will cover the cost of certain things like float down fees if any. This can be a significant amount of reduction if you have the assets.
  6. Float down fee: if the rates change during underwriting, this is the cost to lock-in the rate at the lower rate. I'd multiply this by the chance you think it'll actually change during underwriting e.g. if rates are not volatile, then this is insignificant.   
  7. Table Funding: most lenders table fund. If you are using a smaller institution, I'd ask this question. It can be skipped if using a large lender like Wells Fargo or Bank of America.  This can save you up to 3 days for closing.
If you are buying a TIC in San Francisco, your lender options are limited to local credit unions but the same framework applies.

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