Closing Costs and LendersThe prospect of buying or owning a house is frightening due to the many unknown challenges (financial and otherwise) that people will have to overcome. One important concept to keep in mind is the search for the right mortgage lender. Keep in mind that portfolio lenders are usually Savings & Loan institutions, and sometimes banks.
They are called portfolio lenders because they originate loans for their own portfolio. Conversely, other lenders use them for resale in the secondary market. The distinction gets blurred because most portfolio lenders also engage in mortgage banking. They will often pay more compensation to their loan officers for originating a portfolio product than for originating a fixed rate loan.
One interesting tidbit about these lenders is that they are not as competitive as mortgage bankers and brokers in the fixed rate loan market, though this is no longer a hard and fast rule. It is often easier to qualify for a portfolio loan, so they are often a lender of second resort for those who cannot qualify for a fixed rate loan.
If a loan officer is steering you towards sub-prime loans, it might be wise to check out a portfolio lender first. Portfolio lenders also can serve as "niche" lenders because certain things are more important to them than meeting the more standardized underwriting guidelines of a mortgage banker.
One common example is of a savings & loan that is concerned with an individual's savings history instead of the ability to document income. If you apply for a loan with a portfolio lender and you are declined, that's it. If you still think you should be able to qualify for a loan, you have to start over somewhere else.
Banks and Savings & Loans often operate as portfolio lenders, but as the lending world has changed, most also operate as mortgage bankers and sometimes brokers. It has become common to ask the seller to pay some or all of the closing costs when you purchase a home. Essentially, this is financing your closing costs since you will probably pay more for the property than you would if you were paying your own costs.
Keep in mind a few simple rules. On conventional loans you can only ask the seller to pay non-recurring costs, not items to be paid in advance. If you are putting ten percent down or more, the most the seller can contribute is six percent of the purchase price. If you are putting less down, the most the seller can contribute is three percent.
The "VA No-No," is another option that allows the buyer to make no down payment. It is wise for the seller to put a ceiling on the amount they will pay if they choose to take this route.
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