Looking for a new home? Don’t pick a lender without knowing: “What is Important When Selecting a Mortgage Lender”. We’ll teach you what is important.
With so many mortgage lenders to choose from how do you what’s important? First of all, getting a home loan creates the biggest debt for most Americans. Paying back thousands of dollars with interest for many years is a big deal for most homeowners.
What is Important When Selecting a Mortgage Lender?
How do you know where to find the right mortgage lender? Consider these nine factors before choosing a home lender.
1. Learn the Types of Home Loans (Mortgages) Available
Not all mortgages are alike. The types of mortgage loans you can choose from include:
Let’s explore each one.
Conventional home mortgage loans are private loans offered by banks and lending companies. They are not backed by the government. Yet, they are the most common mortgage loan. Nearly 64% of all new home mortgages are conventional.
Most home buyers take out a conventional loan because they don’t charge as many fees as government-backed mortgages. But, conventional loans are harder to qualify for because private lenders worry about the risks if buyers can’t pay off the loan.
The federal government provides government-insured home loans such as these main three:
- The Federal Housing Administration (FHA);
- Veterans Administration (VA); and
- US Department of Agriculture (USDA).
As mentioned above, because the government insures the homeowner’s loan payments extra fees are charged.
2. Where to Get a Mortgage?
Here are places you can apply for a mortgage loan:
- Conventional banks like your local bank where you have a checking or savings account;
- Credit unions where you must become a member through your relationship with government agencies or companies. According to Forbes, most loans they issue are mortgages;
- Nonbank mortgage lenders are usually found online who offer faster mortgage approvals than banks; and
- Mortgage brokers who search multiple lenders and suggest your best loan option.
3. What Qualifications does the Mortgage Lender Require?
Every mortgage loan requires a review of your credit history and credit score. Whether you apply for a conventional or government-backed mortgage the lender looks at your credit score, down payment, and debt-to-income ratio. Yet, every lender applies its own rules regarding these three factors to apply for your loan.
Learn about credit scores by reading our broker’s blog post: “How To Successfully Buy a Home”. You need to determine if you will meet these qualifying requirements.
Tip: Qualifying for the lowest rates and fees requires excellent credit and large down payment.
Problems with getting loan approval often arise when borrowers ask for a lower down payment than normally required. Similarly, if your credit score is low due to unpaid debts or too many late payments you must apply for a “bad-credit home loan”. This requires extra time browsing lenders who will accept your bad credit. Here’s a good explanation of “How to buy a house with bad credit?”.
4. How to Prepare for a Mortgage
Before applying, help yourself to qualify and get the best rate. You should:
- Check and improve your credit score. If it’s not within the highest range, work on increasing it. Pay all your bills on time, pay off your credit card balances, don’t take on new loans, and don’t open new credit card accounts;
- Save for a down payment. Try to afford a 20% or more down payment; and
- Ensure your income is stable. You must convince lenders you can afford the monthly payments.
Completing these tasks will make it easier to get a pre-approval mortgage letter from a lender or a broker. Basically, this letter tells sellers that your credit score, available down payment, and your stable income qualify you for a mortgage. This letter gives sellers confidence you are ready and able to buy their home.
Tip: Learn about how to get a pre-approval mortgage letter in our post here titled: “Is It Hard To Get Pre-Approved For A Mortgage?”
5. How does the Mortgage Application Process Work?
Some lenders require an in-person meeting. Other lenders process loan applications completely online. No matter which option you choose you must submit supporting documents.
Tip: Don’t choose the online loan application process if you have questions or need help understanding the borrowing process.
Instead, visit a bank or a mortgage company’s office. Then, a loan officer can explain the loan process and what specific documents you must submit.
6. Compare Mortgage Loan Costs
The costs and fees vary between lenders. Here are ways to compare lenders mortgage offers:
- Fees – Mortgage loans incur different fees like application fees and underwriting costs, Ask about all the fees;
- Interest rate – While rates change daily try to lock in the lowest rate when you apply. Ask about “points” fees allowing you to lock into a lower rate; and
- Down payment and mortgage insurance – A larger down payment helps get loan approval. But, save enough for new home expenses like furnishings and repairs. If your down payment is less than 20% expect to pay for Private Mortgage Insurance (PMI) which ensures your mortgage payments.
You need to learn the interest rate on the loan principal, loan origination fees, and other costs the lender charges.
Tip: Your goal is to get the lowest rates and best loan terms from your lender.
Luckily, lenders must provide you with a list of all fees and costs before you commit. That way, you can compare the costs between different lenders.
7. Know that Different Types of Mortgage Lenders Exist
Two types of lenders exist, direct lenders and mortgage brokers. Direct lenders work for their bank, credit union, or lending institution. If direct lenders won’t approve you or charge too much a mortgage broker may help. That’s because mortgage brokers act like insurance agents seeking better rates and terms from many lenders.
Tip: These options allow you flexibility with seeking a direct lender or a broker who can find a home loan that meets your needs.
Therefore, you need to find a lender that fits your situation.
8. Look for the Person and not the Institution
Just like the TV commercials promoting your friendly banker, dentist, or veterinarian. Your loan officer must help you to get the best mortgage that fits your situation.
Look for an experienced one who knows the local real estate market where you will buy. In addition, one who thrives at fitting mortgages with buyers in similar situations as you.
Ask your Realtor, family, and friends about loan officers or brokers they worked with. People you know and trust can recommend the right person to work with you.
9. Questions to Ask a Mortgage Lender
After finding a couple of lenders you think might work, ask the following questions to more about what they offer you:
- What types of mortgage loans do you offer?;
- Which mortgage is right for me?;
- What are your mortgage closing costs?;
- Do you participate in any down payment assistant programs;
- What documents do you require?
- Can I lock in a low-interest rate during the application process, do you charge extra for that?;
- How long will it take to complete the mortgage process?; and
- How do you communicate with your clients?
What is Important When Selecting a Mortgage Lender – Conclusion
After learning what is important when selecting a mortgage lender, follow these suggestions to find the right one for you:
- Understand the types of mortgages available for you;
- Find out where to get a mortgage near you;
- Know what your lender requires to qualify for a mortgage;
- Prepare for a mortgage by checking your credit score and improving it, save for your down payment, and sustain a stable income;
- Get a pre-approval mortgage letter;
- Understand how the mortgage application process works;
- Find out how much your mortgage will cost;
- Know the difference between direct lenders and mortgage brokers;
- Seek the person to work with, not the institution. Ask for recommendations from your Realtor, family, and friends who worked with a loan officer or broker they liked; and
- Ask the right questions before choosing your loan officer or broker.
Need Help with Getting a Mortgage in San Diego County?
SoCal Lifestyle Realty offers experienced Realtors to help you find your dream home in San Diego County. Also, we can help you find a loan officer or a mortgage broker to work with.
Contact us today to prepare you for a pre-approval mortgage letter from a lender or a broker that sellers will appreciate when we find your new home.
Steven Rich, MBA – Guest Blogger