How To Choose A Mortgage Lender
Finding the best mortgage loan is about more than just securing the lowest interest rate. It’s also important to make sure you’re comfortable with the company that’s originating the loan.
Although many parts of the mortgage process are the same across all lenders, there are some differences that can affect the fees you are charged and the service you receive that are worth considering when you shop around.
Where Can You Get a Mortgage?
There are many companies that can help you get a mortgage loan. You could consider a local bank branch where you have a savings account, an online lender or a mortgage broker that works with many lenders.
Lenders that accept your application and lead you through the mortgage process up until closing are loan originators. Once you close on a mortgage, the loan might be sold from the loan originator to another company, which will then be in charge of collecting payments from you.
Mortgage loans are part of the portfolio of services at banks, which also offer checking and savings accounts, other types of loans and possibly investment services.
You can apply in person or online at a bank and will be assigned a loan officer. You might prefer this option if you already have accounts at the bank and want to get personal service from a community bank or local branch of a larger institution.
There are more than 5,100 federally insured credit unions in the U.S., ranging from small lenders to multi-state operations. Like banks, they have a variety of financial offerings—including savings and checking accounts—and more than half of the loans they issue are mortgages.
To get a mortgage loan with a credit union, you need to be a member, which usually means you have to have a “common bond” with others. For example, you could have a family member who is a member, be required to live in particular geographic areas or need to have worked at or retired from companies or governmental agencies connected with the credit union.
You might prefer credit unions to other options because of their personal service and members-only deals.
Nonbank Mortgage Lenders
More mortgages are issued with nonbank mortgage lenders—which include companies that offer their services exclusively online—than other options. These companies might specialize in just mortgage loans or offer a few types of loans in addition to mortgages.
One advantage of working with one of these lenders is speed—some of the largest online mortgage companies in the country have built their brand on quick loan turnaround. Also, if your credit history has some blemishes or you need a non-conventional loan—such as an FHA loan—nonbank lenders might be more likely to work with you than a conventional bank.
If you want to have someone search multiple lenders for you and come up with the best loan option, working with a mortgage broker might be your best bet. A mortgage broker reviews offers from a network of lenders and advises you on the best loan offer, then acts as an intermediary between you and the lender by gathering your documents and providing them for the underwriter.
A mortgage loan through a broker could cost more because brokers often earn a fee and/or a commission that you may have to pay at closing. It’s important to review and compare fees for mortgage brokers with other options.
Some companies offer services that allow you to review interest rate quotes from multiple lenders and choose which one you would like to work with on your loan. You might be able to find a great rate as well as a deal on the closing fees. The lender you choose will take over the process from there, but it’s one way for you to see different options without visiting multiple websites.
How To Find The Best Mortgage Lender
It is easier than ever to find a mortgage lender. Mortgage rates are readily available online on lender and rate aggregation sites, and many lenders aggressively post ads with their rates as a way to draw you to their website.
The banks or credit unions where you have accounts are good places to start on your mortgage loan search, as they might offer special rates and fees for customers. It’s also easy to search online and find lenders as well as websites that aggregate information—including ratings—about top mortgage brokers and lenders.
Finally, talk to friends and real estate professionals for references—they might be able to suggest a lender or broker that they’ve worked with and can recommend.
How To Prepare
Before you start applying and seek mortgage pre-approval, make sure you’re financially ready to take on a loan and get the best rate possible. You’ll want to prepare for your mortgage application by:
Checking and improving your credit score. Check your credit score at least several months before you apply for a mortgage and work on improving it. Paying off credit card balances, making sure you make payments on time and not taking out loans or opening multiple credit cards will help you build a higher score or maintain a strong one.
Saving for your down payment. Although a down payment of 20% or more is ideal, you can get loans for as little as 3% down as long as you can effectively cover the monthly payments.
Ensuring your income is stable. Lenders want to make sure you have enough income to afford the monthly payments now and in the future.
Key Questions To Ask A Mortgage Lender
Before you select a lender and complete your mortgage application, here are some questions to ask:
How long do you expect the process to take?
Will you be my main contact throughout the process, or will someone else take over when it goes to underwriting? How will we keep in touch?
Which steps will take place online and which will occur in person (such as appraisal and closing)?
How long of an interest rate lock do you recommend? If the closing doesn’t take place before that date through no fault of my own, will I have to pay for an extension?
If you’re working with a mortgage broker, you should ask these two questions:
How many lender quotes did you review and why did you select this lender and rate as the best?
What fees and commissions will you charge and who will pay for them—me, the lender or both of us?
How To Compare Mortgage Loan Offers
Before you settle on a winner, it’s important to compare interest rates and fees offered by at least three lenders and/or brokers so you can be sure you have the best deal. Here are a few ways to compare the offers:
Interest rate. This is the most obvious way to choose between lenders, but it shouldn’t be your only determining factor. Keep in mind that rates change daily, so you’ll want to be sure you have the right lender before you lock in a rate and finalize the application. Also ask about points, which are fees that may allow you to get a lower interest rate. Find out how much they cost and whether you need them at all.
Fees. There are a variety of fees associated with a mortgage loan. Not all of them are clearly understandable. Some lenders might list the fees individually while others lump them together. Ask about all of them—including application fees, underwriting costs and others that are charged at closing. Compare between lenders and negotiate as many of the fees as possible.
Down payment and mortgage insurance. You’ll want to put down as much money as possible on a mortgage loan, but also make sure you’re saving for the inevitable home expenses—such as repairs and furnishings—for when you move in. For that reason, work with the lender to see if there are any down payment assistance programs that can help you get the loan without stripping your savings, especially if you are a first-time homebuyer. If you put down less than 20%, you’ll likely need to pay private mortgage insurance (PMI).
Once you decide which offer is best for you, complete the application. As long as you have your paperwork in order and there aren’t any financial issues that arise before closing day, you’ve likely been through the toughest part of the mortgage process. You can look forward to signing your loan documents at closing and moving into your new home.
For more information or if you would like us to help you through the process, contact our office to speak with one of our knowledgeable agents.