Choosing a Mortgage Lender
Choosing a mortgage lender can be one of the most intimidating parts of getting a home loan. A quick check online will show there are literally thousands to choose from. So how do you decide whom to pick?
Actually, the process is pretty straightforward if you just break it down into four steps. You're going to pick a lender based on 1) trust, 2) best deal, 3) convenience or personal preferences and 4) special needs. If you find a lender who meets all four of those, you'll be in good shape.
Is the lender trustworthy?
The first consideration, and the biggest one, is trust. If your mortgage lender isn't trustworthy, you can't be confident you're getting #2, the best deal, or even a good one, for that matter. And you won't be comfortable with the process, which can lead to anxiety and cause you to second-guess your decisions.
So how do you find a lender you can trust? The first step is ask friends and relatives for recommendations - if they've had a good experience with a lender, chances are you will as well. You can also contact several that seem to be offering good rates and make some initial inquiries about a loan. Are they patient with you and give straightforward answers? Do they give clear and concise answers? Do you feel comfortable talking with them? These are all good signs of an ethical lender.
On the other hand, be wary of a lender who gives vague answers or insists on doing all the talking without letting you get a word in edgewise. Other red flags include a lender who tries to sell you a particular loan package from the get-go without knowing anything about your situation, or one who pressures you to sign documents you don't fully understand.
One of the best things you can do is trust your gut - if someone seems to be trying to snow you or makes you feel uncomfortable, just go elsewhere. There are plenty of other lenders out there.
Finding the best mortgage deal
Finding the best deal is challenging for many borrowers. As you may know, the mortgage rate is only part of the picture. You also need to take into considering closing costs, points and fees, all of which can significantly affect the final cost of your loan.
The best way to do this is simply to contact several lenders and ask them what it would cost you to borrow whatever you need, based on your credit background and available down payment. Ask them for the interest rate, any discount points, closing costs and other fees they charge. You don't want them to cite third-party fees, such as for the title company, since at this point you're just trying to learn what the lender's charges are.
You also want to try and get quotes from different lenders on the same day, if possible. Interest rates change daily, and sometimes several times a day, so if you get estimates on different days, you may not get an accurate picture of the relative cost difference among lenders.
Convenience and personal preferences
Convenience and personal preferences are another factor to consider. Many lenders allow you to research and apply for mortgages online these days. Some, such as Quicken Loans, function almost entirely online and by phone. Others, such as major banks like Wells Fargo or Bank of America, provide online banking and mortgage services in addition to regular offices where you can meet with a loan officer face-to-face.
Convenience is also a factor in choosing whether to use a mortgage broker or deal with a lender directly. A mortgage broker doesn't actually make loans, but instead acts like a middleman who helps you find the best mortgage deal from among multiple lenders. If you prefer to do your own research, you might prefer to evaluate different lenders yourself to find the best deal. Mortgage brokers typically get a discount from the lenders they work with, so the final costs can be comparable to working with a lender directly, but you do want to be sure to ask them how they are paid and how much for handling the loan.
Special needs or circumstances
The last thing to consider in seeking a lender is if you have any special circumstances that may make it harder for you to obtain a loan, such as a low credit rating or seeking to obtain financing for a unique property. In those cases, you may find that the terms offered and even lenders' willingness to make loans in those circumstances may vary widely, so it helps to find lenders who tend to specialize in situations like yours.
This is where small, local lenders can be useful. You may be considering a home with a quirky design or perhaps one that simply doesn't match its neighbors, such as the original farmhouse that a subdivision sprang up around. Big banks may consider those properties hard to sell in the event of default and may be unwilling to finance them, but a small lender familiar with the area may have a better understanding of the property's true value.
Other circumstances that may turn off some lenders include seeking to buy a home in a depressed area, being self-employed or working in an uncommon occupation. Jumbo loans for high-value properties can fall into this category as well, as some lenders would prefer not to deal with them.
At any rate, depending on your situation, you may need to shop around a bit to find a lender who's willing to take on the loan or who deals with similar situations regularly. This is another area where a mortgage broker can be useful, because they know and have access to a wide variety of lenders.
Finding the right lender can be a challenge. But if you approach it methodically, you can be confident that the choice you make is the right one.