Finding the Best Mortgage

A fundamental mistake many realtors make (even the most experienced) occurs when he or she first talks to a potential buyer. As soon as the realtor learns the potential buyer isn't preapproved for a loan, they frequently do one of two things. Either they tell the potential client they don't work with unapproved buyers or they hand them a business card of a preferred lender and tell them to come back when they have a preapproved mortgage letter. WRONG!

Instead, you should give them some information about how to obtain the best mortgage possible. Naturally, the more helpful you are, the more likely potential buyers are to come back to you once they do have that preapproval letter. Here are some tips you can share on a flyer that you hand to them (or email them).

Refer them to a top-notch mortgage broker. A good mortgage broker has relationships with multiple financing sources. This improves the chances the borrower will get a better mortgage than if they shop for it themselves. A mortgage broker can also work with the borrower to learn what the best loan is for them. For instance, the mortgage broker can educate the borrower about differences and risks of a 30-year fixed loan versus an adjustable loan. Or they can determine if the borrower is better off paying points upfront to buy down the interest rate. Once they have the right information, they can educate the borrower about the best mortgage for their particular situation.

Improve their credit rating. Today, most people understand that a good credit rating is critical to obtaining a loan. However, not everyone knows how to go about improving his or her credit score. The first thing they need to do is get a copy of their credit report from all three major reporting bureaus and challenge any incorrect information. Challenges that the credit bureau can't prove within 30 days must be removed from the report. Even a small improvement in the borrower's credit score can make a significant difference in the loan they are approved for and what it costs them over a 30-year mortgage. Additionally, very few people know that if they shop for their own mortgage and approve multiple checks of their credit rating, it can cause their credit score to lower temporarily.

Paying points verses a bigger down payment. Both can reduce the amount of interest paid over the life of a loan but not always. Borrowers have a limited amount of cash and need to know which method is in their best interest. Often it depends how long they will own the home. If they plan to buy up or relocate in the next six or seven years, a larger down payment makes more sense than paying the interest rate down by paying points they can't recover. The bigger down payment buys them equity that they are likely to recover when they sell. Even if they pay a marginally slightly higher rate with a high down payment than they would paying points, over six or seven years the equity can be more valuable than the interest saved.

Consider a credit union. Banks are often not the source of the best mortgages. Credit unions often offer better deals. Credit unions are owned by the members and have policies favoring owner-members. This isn't always the case but it's worth checking out and if the credit union offers a better deal, it can worth it to open an account to become a member.

Ask about special programs. There are a lot of special programs out there that can lower the cost of buying a home.

• VA loans requiring low or no down payment are available to those that have served in the military.
• FHA loans also offer lower down payments and are available to those with lower credit scores.
• USDA loans are available in rural areas and offer low or no down payment along with help with closing costs in some cases.
• HUD maintains a list of first time buy assistance programs that should be researched.

The bottom line is that buyers that aren't yet prequalified shouldn't be turned away. Instead, they should be provided information about how to begin the preapproval process and shown the many options available.

Please leave a comment if this article was helpful or if you have a question.

Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.