5 Tips To Choose A Mortgage Lender (2024)

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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 brokerthat 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.

Conventional Banks

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.

Credit Unions

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.

Mortgage Brokers

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.

Mortgage Marketplaces

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.

5 Tips for Choosing a Mortgage Lender

With so many options available for a mortgage, it can be easy to be overwhelmed. Use the following tips to help narrow the list of potential lenders and select the right one for your needs.

1. Identify your preferred loan terms. Before you can choose the right mortgage lender, you need to know what you want in a loan. Are you looking for a 30-year or 15-year term? Do you want a fixed-rate or adjustable-rate mortgage? Will you qualify for a conventional loan, or will you need a jumbo mortgage? Once you know these details, you can quickly filter out the lenders that don’t offer the mortgage products you want.

2. Ask for referrals from friends and family. Online reviews are helpful, but don’t overlook the advice of your family and friends. Ask your social network who they used for a mortgage, and you may get some prime information about which companies to use—and which to avoid.

3. Talk to multiple lenders. While speaking to one lender may be easier, you should cast a wide net. A better fit may be available, but you won’t know until you talk to several companies. Ask each whether they service their own loans or sell them, how you can reach customer service and what sort of online or mobile account access they provide.

4. Compare both rates and fees. Home buyers are often focused on interest rates, but fees can quickly add up. As you talk to lenders, ask whether they have application or origination fees. Sometimes, the advertised rate can also assume you are buying points, which can increase closing costs.

5. Go through the preapproval process. Most lenders offer a preapproval process, allowing you to receive an estimate of your costs and interest rate. Preapprovals are non-binding, and you should get preapproved through several lenders so you can better compare numbers. One caveat: a preapproval could reduce your credit score by a few points if it involves a hard inquiry on your credit report. However, some mortgage companies use what’s known as a soft pull to check credit that doesn’t impact your score.

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 paymentof 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 lockdo 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 programsthat 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.

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I'm an expert in the field of mortgage loans with extensive knowledge of the mortgage process, various types of lenders, and the factors that borrowers should consider when selecting a mortgage. My expertise is rooted in a deep understanding of the mortgage industry, including the roles of conventional banks, credit unions, nonbank mortgage lenders, mortgage brokers, and mortgage marketplaces.

When evaluating mortgage options, it's crucial to consider not only the interest rates but also the overall service provided by the lending institution. I can provide insights into the nuances of the mortgage process, including the differences in fees charged by various lenders and the impact of loan originators selling mortgages to other companies after closing.

Now, let's delve into the concepts mentioned in the provided article:

  1. Loan Originators:

    • Loan originators are companies that accept mortgage applications and guide borrowers through the mortgage process until closing.
    • After closing, the loan might be sold to another company responsible for collecting payments from the borrower.
  2. Types of Mortgage Lenders: a. Conventional Banks:

    • Banks offer a range of financial services, including mortgage loans.
    • Application options include in-person or online, and borrowers are assigned a loan officer.

    b. Credit Unions:

    • Credit unions, like banks, offer various financial services, and more than half of their loans are mortgages.
    • Membership requirements exist, often based on a common bond such as family connections or geographic location.

    c. Nonbank Mortgage Lenders:

    • Nonbank lenders, including online companies, issue a significant portion of mortgages.
    • They may specialize in mortgages and offer faster loan turnaround.

    d. Mortgage Brokers:

    • Mortgage brokers search multiple lenders for borrowers, acting as intermediaries.
    • Brokers may charge fees or commissions, impacting overall loan costs.

    e. Mortgage Marketplaces:

    • Companies provide services to compare interest rate quotes from multiple lenders.
    • Borrowers can review options without visiting multiple websites before choosing a lender.
  3. Tips for Choosing a Mortgage Lender: a. Identify preferred loan terms, considering factors like term length and loan type. b. Seek referrals from friends and family for personalized recommendations. c. Talk to multiple lenders to explore different options and compare services. d. Compare both interest rates and fees to ensure a comprehensive assessment. e. Go through the preapproval process with several lenders to facilitate accurate comparisons.

  4. How to Find the Best Mortgage Lender:

    • Explore rates online, check with current banks or credit unions, and seek recommendations from friends and real estate professionals.
  5. Preparation for Mortgage Application:

    • Check and improve credit scores.
    • Save for a down payment.
    • Ensure stable income.
  6. Questions to Ask a Mortgage Lender:

    • Inquire about the expected timeline, main contact person, communication methods, and steps conducted online or in person.
    • For mortgage brokers, ask about the number of lender quotes reviewed and fees/commissions.
  7. Comparing Mortgage Loan Offers:

    • Compare interest rates, considering the daily rate changes and potential impact of points.
    • Evaluate all fees associated with the loan, including application and closing costs.
    • Discuss down payment options and potential assistance programs to avoid depleting savings.

By utilizing this knowledge, borrowers can navigate the complex mortgage landscape and make informed decisions when choosing the best mortgage lender for their needs.

5 Tips To Choose A Mortgage Lender (2024)
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