by Matt Hermes
on Tuesday, September 24th, 2019 at 8:51am.
One of the most important things a buyer can do when purchasing a home is pick the best mortgage lender. Going about picking the best lender is something most buyers don’t give a lot of thought to.
Understanding how to pick the best financial institution to get a mortgage from, however, is a critical aspect of buying a home.
For most home buyers, getting a mortgage is a necessity. Homes are expensive, even the affordable ones, making buying them with cash impossible. Mortgage lenders specialize in filling in the gap between how much money you have and how much money you need to buy a home.
They are in business to attract home buyers like you, which means that you can often find better terms if you do a little shopping around.
It is worth your time to carefully consider and compare mortgage lenders before making a final decision on who you want a loan from. The effort you put into the process will most likely save you considerable money and hassle over the life of your mortgage.
One of the things that many naive home buyers do is go to one of the big national lenders such as Bank of America, Wells Fargo or others. The problem with doing so is many of these national lenders don’t have the best mortgage programs.
The best deals are found when you have a mortgage broker. A mortgage broker will seek out the best lender for your specific needs and goals.
For example, do you want the best thirty-year fixed rate mortgage with no points or closing costs?
By not doing your homework it is easy to get lousy mortgage terms that you later regret not putting in the time and effort.
Here are some of the best tips on how to pick a mortgage lender:
Finding the Right Mortgage Lender—What You Can Do
1. Work on your credit score.
The better your credit score, the easier it will be to find a fantastic mortgage. Not that you have to have a perfect score to get a good loan, but the higher your score, the more attractive you will be to the vast majority of lenders. They will be willing to give you a better deal. Every little bit helps. Consider that even a single percentage point off your loan rate will easily save you thousands of dollars.
Everyone’s needs are different, but generally, it is better for you to wait a little while and improve your score if it is quite low. Learn about how to improve your score, fix your credit and reap the rewards.
2. Know the difference between a broker and a lender.
Mortgage brokers and mortgage lenders are not the same things. A mortgage broker works to secure mortgages for buyers by finding lenders who will lend to them. Ideally, a mortgage broker will be able to get you a better mortgage than you would be able to get on your own—that is why they charge a fee for their services. But this is not always true, so examine the details carefully when working with a broker.
A mortgage lender is an institution that will loan you the money to buy your home. There are a variety of mortgage lenders out there, including credit unions, banks, and other institutions. Examples of mortgage lenders include:
Mortgage bankers – These individuals work for a specific bank that offers mortgages.
Credit unions – Credit unions are owned by the members, so they tend to focus on offering exceptional rates to those members.
Correspondent lenders – These lenders do not have the finances to loan you the money directly for your mortgage, but they have connections with other lenders whom they draw on to fulfill your loan.
In my thirty-two years of experience in selling homes, mortgage brokers more often than not can get buyers better loan terms. They have access to more programs than a single lender would have.
Typically the fees they receive are paid by the lender they place you with.
3. Get a recommendation from someone you trust.
If you know anyone who has purchased a home recently, he or she may be able to give you some perspective on finding a mortgage and the different lenders available.
Your friend, family member or co-worker may have good things to say or bad things to say about the lender they used. Both of these are valuable because they help you get a better idea of what your options are.
Your Realtor is also an excellent resource for lender recommendations. If you choose an agent, you trust you can then rely on his or her insight into lenders.
Agents help numerous clients purchase homes throughout the year, so they are usually up-to-date on the lender’s clients liked and the ones they didn’t like.
A real estate agent can explain the service the lender provided. Sometimes the lender can be great, but the mortgage officer is not. You want cohesion with both the lender and the agent that represents them.
Understanding how to pick a lender involves due diligence. It is best to back up the advice of those you know with your own research. A few days spent checking reviews on different brokers and lenders can give you useful knowledge about how clients have felt about their experiences.
Online reviews are easy to post, however, and keep in mind that it is usually the most unhappy clients who are likely to be most motivated to write a review. Take online reviews with a grain of salt. Instead of focusing on any one recommendation, try to get a feel for how borrowers feel overall by reading multiple reports of the same lender.
Sometimes people that write reviews assume things should go a certain way to their liking. Sometimes they are right, and other times they are not. It is easy to write a negative review – keep that in mind.
Don’t throw the lender to the bottom of the pile because of one customer who didn’t think they had the best service.
5. Get the details of what the lender is going to charge you.
Although the interest rate of your loan is indeed a big concern, there are a lot of other potential costs that can be tacked on by lenders and brokers. Some fees are a given while others are not.
There are a variety of fees you may encounter, including:
Processing fee –This fee is supposed to cover the cost of processing the mortgage and is usually a fee you will face when dealing with brokers. The broker may pay a third-party processing company and want you to cover the cost. Processing fees are not something that every broker will demand, so feel free to request that this one is waived.
Origination fee –The origination fee is another fee charged by brokers. It is a fee that goes to the broker to cover the cost of the broker’s time and effort. While you may at first balk at paying a broker when you could go straight to a lender, remember that brokers can often get you a better deal than you would get on your own. Try to weigh the benefits offered by the broker against the origination fee.
Underwriting fee – The underwriting fee is supposed to pay for the costs of closing and funding the loan for the lender. You will find that the underwriting fee is higher or lower depending on what company you choose.
Rate lock fee –Interest rates change regularly. Lenders are willing to lock in the rate that you are offered at the moment, but they may want to charge a rate lock fee. The fee is supposed to help the lender if they miss out on charging you a higher interest rate. Make sure you don’t pay a fee for the lender negligence on doing their job!
Appraisal fee – Every lender will require an appraiser to go to the home you are interested in buying and verify its value. They will charge you for this, so expect to be charged an appraisal fee. Hopefully, you don’t find yourself in a position where the house does not appraise.
Application fee – The application fee is supposed to cover the cost of getting your credit report and all the other work required to complete your application. Sometimes the application fee can be waived. Other times the charge will have the appraisal fee rolled into it.
Fees are often where it is hard for borrowers to determine what lender is providing them the best terms. Make sure you study all the expenses carefully to make sure you pick the lender who is giving you the best deal.
6. Understand the qualification letter the lender provides.
As a borrower, two mortgage terms you need to understand are pre-approved and pre-qualified. These two mortgage terms can have vastly different meanings. They can be so different that it could end up costing you the home you really love!
With a pre-approval, the lender will check your credit score, verify your employment and verify your income.
A pre-qualification, on the other hand, can be given by a lender who takes your word for the information you provide them over the phone. Nothing is verified. In other words, the document isn’t worth the paper it’s written on.
Where it can get tricky is some lenders use these two terms synonymously. As a buyer, you need to make sure that if your lender uses the term “pre-qualification” that they have verified your income, employment, and credit score.
Real Estate agents and sellers will want to know you are qualified to purchase the property.
7. See if you qualify for a specialized loan.
Some loans offer more favorable terms than standard mortgages. If you qualify for any of them, they are worth considering. These include Federal Housing Administration loans, VA loans, and loans from the Department of Agriculture, otherwise known as a USDA loan.
For instance, VA loans are an option for veterans and make it possible for you to buy a home at generous rates and without needing a down payment. Low or no money down are one of the significant benefits of a VA mortgage.
FHA loans offer low-interest rates and are available with a lower credit score than most other lenders will accept.
If you think that you might qualify for any of these specialized loans, do some research and take advantage of them. They may make it possible for you to purchase a home more easily than you could otherwise.