Working Smarter with a Loan Officer

A good relationship with a loan officer is vital for someone wanting to make solid decisions on the purchase of a home. As a Realtor advises you on the physical, transactional, a lifestyle aspects of your purchase, a loan officer advises you on the financial. A good loan officer will ask you a lot of questions about your personal situation to assure that:

1) You are not buying too much house for your budget.

2) You are using the type of loan that will minimize both expense and risk in your personal situation.

Before you make a home purchase you should personally analyze your budget and do some soul searching. Ask yourself what priority the purchase of your home should be in your life and finances. How much of your budget are you willing to spend on your home? What things are you willing to give up in order to own a home? What are (realistically) your future financial prospects?

When you meet with a loan officer for the first time, go with a good idea of the amount of money you are willing to spend upfront and on a monthly basis in order to purchase a home. You may tweak these numbers later, but go in with a ballpark figure. Be open to answering questions from your loan officer. They should ask questions like: How long do you plan to be in your new home? Do you expect your income to rise over the next few years or remain steady? Is your income stable or does it vary from month to month? Are you comfortable taking a risk that your payments will go up down the road in order to save money now, or do you want to make sure your payments are stable?

Any loan officer (or lender web sit) will tell you how much you qualify for and give you an array of loans to choose from. A good loan officer will listen to you, then help you choose the loan that best meets your needs. A good loan officer will also give you an opinion about the best loan for your situation based on years of experience working with many buyers.

Choose a loan you are comfortable with, that you qualify for, and that you can actually afford before you ever go out and look at a home. It is very difficult (and discouraging) to find a home in your price range if you have been out looking for homes that cost 20% more. Know your price range before you start looking and you will save yourself a lot of frustration.

In choosing your loan officer get a recommendation from someone you trust, preferably your real estate agent. Most loan officers are commission based and get most of their business from 3-6 real estate agents that they work with regularly. This can benefit a buyer substantially. If a substantial portion of a loan officer's livelihood comes from your agent, the loan officer is much more likely give great service to you. You are much more likely to have commitments honored. You are much more likely to have the money there the day you have committed to close on your purchase. (Note to first time buyers: Though it is hard to believe, some lenders all too often take loan applications, process your paper work, make you find obscure financial information, then don't have the money there on the day of closing.)

After you meeting with a loan officer, you should take with you a good-faith estimate showing you all of the costs (upfront and monthly) involved in purchasing a home, and a pre-approval letter stating exactly how much you can afford to borrow and the total price of a home you could purchase. This will allow you to move into the next steps of the home buying process: finding the right home and negotiating the best price.

One more thing: read this perspective of a loan officer from a loan officer. It is a little scary, but very true.