- Peter KingSeptember 13, 2011 - MortgageLoan.com
Monday, Sep 12, 2011
How do you find the best mortgage lender to meet your needs? Although many borrowers simply look for the one offering the lowest interest rate, there's more to it than that.
The first thing you need to know is that low interest rate isn’t necessarily a sign of a good deal. A mortgage or refinance inevitably comes with all kinds of fees and various costs that, when added together, can significantly raise the cost of your loan. So what you want to do is find the best combination of interest rate and fees. More on that later.
When shopping for a mortgage, either to buy a home or refinance, there are a variety of different types of lenders that can meet your needs: large institutional banks, national mortgage lenders, online lenders, smaller regional and community banks, savings and loans, credit unions and mortgage brokers, to name some of the main ones. Each offers its own advantages and disadvantages.
Large mortgage lender or community bank?
The bigger lenders, particularly the large banks and national and online lenders, may be able to offer particularly good rates. However, their loan approval process tends to be fairly structured and may be a poor fit for you if your circumstances or the property you’re financing don’t fit neatly into cookie cutter categories – like an unmarried couple buying old farmhouse on the edge of a subdivision, for example.
Larger lenders may not give the personal service smaller ones do, though that isn’t always the case. Many large banks and lending institutions operate local offices with lending officers who can provide a level of personal service similar to a small bank.
Don’t assume smaller regional lenders can’t compete with the big boys on interest rates and fees, either. In fact, many of them are actually correspondent lenders for the larger banks – in essence, offering big-bank mortgages and terms under their own label.
Loans tailored to local markets
A smaller, local lender, such as a community bank, savings and loan, or credit union, can offer personal service, but that’s not their only appeal. These lenders also tend to have a detailed understanding of their local real estate markets and economies, and may be comfortable making loans to clients and on properties in their area that larger lenders may shy away from.
Certain lenders, both large and small, will be more willing to extend mortgages to borrowers with poor credit, although they charge higher interest rates to do so. You can track these down on your own, but if that’s your situation, you may want to go with a mortgage broker. Brokers work with a large number of lenders to find you the best rate and terms, though they charge a fee for doing so, typically in the form of a slightly higher interest rate than if you’d contacted that same lender directly. Still, many people find the convenience they offer and knowledge of where to find the best terms to make their services well worthwhile.
What to look for in a loan officer
To choose a mortgage lender, you want to find someone who’s knowledgeable and who you’re comfortable working with. Does the loan officer/broker readily answer your questions? Do they seem knowledgeable, or do they keep having to get back to you on things they ought to know? Do they return calls promptly? Finally, do they strike you as a mortgage professional or just someone who’s trying to get you to sign on the dotted line?
When you find a few brokers you’re comfortable with, and who seem to be offering attractive rates and terms, it’s time to do some serious shopping. Ask 3-4 for rate quotes (you shouldn’t have to pay for this), based on the amount you want to borrow. Try to submit all your requests in a single morning or afternoon, since rates change several times a day.
Comparing mortgage quotes
For each quote you request, you’ll receive a federally required Truth in Lending form (TIA), which will spell out the interest rate they’re offering and any fees that will be charged for originating the loan and other costs. It will also show something called the Annual Percentage Rate (APR) , which is a way of combing the interest rate and lender fees into a single figure.
Basically, the APR is what you’d pay if all the lender’s fees were built into the interest rate, rather than being added onto the loan amount. It’s a good way to compare the actual cost of different loan offers, within limits. The APR won’t reflect the cost of non-lender fees, which will also be listed on the TIL form, and you can’t use it to compare dissimilar loans, like a 30-year mortgage to a 20-year one, or the cost of a 7-year adjustable rate mortgage (ARM) . But it will let you compare apples to apples, mortgagewise, and determine which lender is offering the best deal.