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August 3, 2022

How to Choose a Mortgage Lender: Everything You Need to Know

You've found the house of your dreams, but you're just not sure where to find a mortgage. Should you go to the local bank? Should apply for a loan online?

You have options for financing your house. But how do you choose a mortgage lender? 

By the time you've finished reading this article, you will understand how to choose a mortgage lender and move forward with your house purchase with confidence. 

Types of Mortgage Lenders

The term "mortgage lender" is a broad term referring to any entity that will lend you money for a mortgage and help you unlock your dream home. Here are some common types of mortgage lenders.

Banks

Traditionally borrowers would go to local banks to finance their homes. These are still a viable and strong option if you want all of your finances with one organization. You can go to the bank where you have a checking and savings account. 

This organization already knows you, so they should be able to make a decision pretty quickly on if you're a good candidate for a mortgage. Sometimes, though, the lending process can take longer with a bank compared to other types of lenders. 

Credit Unions

Credit unions differ from banks in that they are not-for-profit organizations. When you bank at a credit union, you're a part owner of it. This means getting a mortgage from the credit union also benefits you in the long run, helping your credit union stay financially healthy. 

Credit unions offer lower loan rates and lower fees than banks. Unfortunately, many have limited loan products as well, so you may not be able to get the mortgage that you need.

Mortgage Lenders

Mortgage lenders exist specifically to lend money for mortgages. As a result, their process is faster than a bank process. They're also typically more flexible with you if you have poor credit. 

The lender will examine your credit history, credit score, assets, and income when they consider offering you a mortgage. Often mortgage lenders have programs specifically for first-time homebuyers or individuals who need help with their downpayment. 

Mortgage Brokers

As you look for a mortgage lender, you may come across a mortgage broker. Brokers aren't lenders, but they can help you find a good mortgage. 

The mortgage broker acts as the middle man between the lenders and the borrowers. They do the shopping for you to find the best mortgage available in light of your finances and credit report. 

They do the legwork for you when looking for a mortgage. Because of their relationship with lenders, they may be able to get you a premium rate with a lender. 

You typically pay the mortgage broker their fee when you close on your house. 

Vet Your Mortgage Lender

If you believe you've found a good mortgage lender, then it's time to interview them. You're looking at a 15 to a 30-year relationship with this organization, so you need to make sure you've found a good fit. Here are a few basic questions to ask about: 

  • Length of the process
  • Types of mortgages you offer
  • Mortgage terms
  • Who you will work with during the process
  • Contact information
  • Qualification terms
  • Which steps occur online
  • Which steps take place in person
  • If they offer a mortgage rate lock

You should also ask them about fees and commissions up front, who pays for these fees, and how many quotes they typically review.

How to Choose a Mortgage Lender

Once you ask these questions, begin to look at the lender. Your final decision should depend specifically on your financial needs and financial situation. What mortgage can you afford today and in the long run? 

Here are a few ways you can narrow down your choices to the final mortgage lender you will use. 

Use Filters

Come up with a list of filters that helps you weed out the lenders you don't want. For example, if you have a credit score below 600, look only at lenders that accept credit scores under 600. 

Consider how much financing you need as well. For example, if you need 80% financing, only look at the lenders that offer 80% financing. 

Compare and Contrast

Remember that you're shopping for a mortgage. This means you need to consider more than just one lender. Get quotes from your top three choices and then place them side by side to see their similarities and differences. 

Compare Fees

You will have to pay the lender for their work in the form of fees. Ask about the specific fees that you need to pay, and then compare those between lenders. Here are some common fees that borrowers must pay: 

  • Loan application
  • Appraisal
  • Credit report
  • Document Preparation
  • Inspection
  • Notary services
  • Processing
  • Underwriting

Fees, in general, should not exceed more than 1% of the loan total. So take your total loan and compare it with the fee total. If a lender has more than 1 percent, take them off the list. 

Final Checklist

When you think you've found a lender, read the reviews online. Customers are brutally honest online, whether they've had a good or poor experience. Then ask the lender about the following topics regarding their institution: 

  • How long they've been in business
  • If their processing, underwriting, and funding are outsourced or completed in-house
  • If they can explain the fees to you
  • The types of loans available
  • The loan program they'd recommend for you 
  • The maximum amount you can borrow
  • How much you must pay for your down payment
  • If there are prepayment penalties
  • If there are perks or programs they offer

The best lenders exist to serve you. So look for a mortgage lender that wants to give you the best deal possible and who can answer all of your questions. 

Choose a Mortgage Lender With Confidence

When you're looking for a mortgage lender, ask all the questions. Compare the lenders side by side so you know who offers you the best deal. Then move forward and choose a mortgage lender with confidence. 

Are you preparing to finance your dream home? If so, contact us. We will answer your questions and work hard to serve you well. 

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