6 Tips For Choosing the Right Mortgage Lender

Most buyers need a mortgage to purchase a home, and when you finally secure financing, you’ll be stuck with it for a long time. The most common amortization period is 25 years, so that’s a long time to be tied to a mortgage. As such, you’ll want to make sure you get the best mortgage with ideal terms to best suit your situation and work with the right lender who can give you what you need.

Taking the time to shop around for the right mortgage lender can help you secure the right home loan for you, so it pays to carefully assess lenders before settling on one.

Here are a few ways to help you pick the right lender.

1. Get Your Credit Score Up to Snuff

Before you start shopping around for a lender, you’d be doing yourself a favor by making sure your credit score is strong. Lenders prefer to do business with borrowers who have a high credit score, which will make them less of a risk. Borrowers with low scores usually have a financial past that’s littered with late or missed debt payments. Lenders want to recoup the money they lend, and extending credit to people who have a tendency to miss payments will make their investment less attractive.

Pull your credit report to find out what your score is and what has influenced it to be where it’s at. If your score is less than 680 (which is what conventional lenders usually set as their minimum before approving mortgage applications), it would be in your best interests to take a few months to give it a boost. That means making all of your credit card payments on time, spending no more than 30% of your credit limit on your cards, resisting the urge to apply for additional loans, and paying down your debt.

The more you diligent you are with your finances, the higher your credit score can climb. The best time to apply for a mortgage with a lender is when your credit score is up to par, which will increase your odds of getting approved for a home loan at a favorable interest rate.

2. Understand the Different Types of Lenders Out There

Not all mortgage lenders are the same, and you’d be well advised to get familiar with the types out there. This will help you determine which type of lender will be best for your particular situation. Here are a few lenders that are available that you may want to get familiar with before choosing one to work with:

Banks – Lenders who deal directly with banks work for a specific financial institution and are only able to offer that particular bank’s mortgage products.

Credit unions – Credit unions differ from banks in that they are owned by members and are not out to make a profit for investors. They also have mortgage lenders that work with them to offer borrowers mortgage products.

Fintech lenders – These lenders have become increasingly popular over the recent past because of how easy and convenient they can be to interact with, as well as the more lax lending criteria required to get a mortgage. Fintech lenders are those who deal with borrowers directly online, such as Lending Tree, LendingHome, and Better, to name a few.

Private lenders – If you don’t have all the traditional requirements to secure a home loan – such as good credit or a sizeable down payment – private lenders may be available to help out. There are many private lenders who deal specifically with bad credit borrowers, though it should be noted that the interest rates associated with these mortgage products are usually much higher than those from conventional lenders.

Mortgage brokers – Brokers aren’t actually lenders. Instead, they do the legwork for you to find a lender who is willing to extend a mortgage to you at terms that are best suited for you. They are usually paid by the lender and charge a small percentage of the loan amount. In many cases, it makes sense to work with a mortgage broker, because these professionals will take a lot of the work off your hands and do it for you to help you find the best lender to work with.

Get to know the types of lenders out there before you start shopping for one.

3. Compare Interest Rates

When shopping around with different lenders, one of the most important things that you should compare between them is the interest rates offered. Even a fraction of a percentage point can make a big difference on the overall amount of interest that you’ll be paying over the life of the loan. Obviously, a lower rate is best, so finding a lender who’s willing to offer you the lowest rate is usually ideal.

That said, the interest rate shouldn’t be the only thing you look at. A lender who charges the lowest rate might have a bunch of hidden fees that could actually make their mortgage product more expensive when all is said and done. Also, don’t forget that the quoted rate is just a starting point. That rate could change once the lender assesses all of your financials.

4. Check Out the Little Details

There’s always fine print involved with services, and you’d be well advised to carefully review it before settling on one particular lender. Some of the details you may want to look at include:

  • Early repayment penalty fees
  • Lending fees
  • Underwriting fees
  • Application fees
  • Down payment requirements
  • Pre-approval and final approval turnaround times
  • Whether or not lending fees can be rolled into the mortgage or paid up front

Read over the contracts and ask as many questions to get the answers you need to make the right decision about which lender to work with.

5. Get Pre-Approved

It’s always a good idea to get pre-approved for a mortgage before you decide to buy a home. That way you’ll know how much house you can afford and can speed up the process after you find a home you love.

But getting pre-approved for a mortgage with a handful of lenders will also help you compare each one against the other. You can simplify this process by having a mortgage broker do this for you – this will allow you to fill out one application that can be distributed to several lenders. Either way, getting pre-approved for a mortgage can help you narrow down your choices about which lenders to work with.

This will give you the most accurate comparison because each lender will thoroughly review your finances and credit report. Be prepared to hand over a number of documents and paperwork, including pay stubs, tax returns, bank accounts, employment letters, and statement of assets and debt, among others. While this might take some time, it can give you a head start when it’s time to get final mortgage approval.

6. Ask Your Real Estate Agent

Perhaps one of the best places to start looking for a solid mortgage lender is to speak with your real estate agent and get their opinion of who to work with. These professionals typically have a network of mortgage lenders that they deal with on a regular basis, and they’ll be able to recommend someone for you. Besides, mortgage lenders who are referred to by real estate agents will make sure to take care of their customers, particularly after getting a referral. 

The Bottom Line

Your mortgage lender plays a critical role in your ability to secure financing and purchase a home. Considering this fact, it’s important to do your homework and choose one to work with who can provide you with ideal mortgage terms that best suit your financial situation. There are several ways to go about finding the right lender to work with, and in the worst case scenario, your real estate agent will be able to point you in the right direction.