Half the battle in picking “the best” mortgage lender is educating yourself on the basics of the home lending industry. The rest comes down to which lender you feel comfortable with, what loan products meet your needs, and where your personal financials stand as they come to light.
This five-step guide is meant for any would-be homeowner who is trying to choose a great lender:
- Balance your approach. Many lenders are good lenders for a variety of reasons, not just one. If those reasons align with your interests during the mortgage process or they outperform your expectations, the lender is probably a good fit for you. Nonetheless, there are some key areas to be aware of. Many lenders in today’s competitive mortgage arena are all too happy to offer you a “lower” interest rate on the mortgage’s front-end just to load the comparatively expensive loan origination and other fees on the back-end. That’s just one example — and it can sometimes be the case with lenders that are 100-percent digital/online. Be detailed-oriented at the very beginning of this orocess, because a lender is working for you on what is perhaps the biggest purchase of your life.
- Know which type of lenders are competing for your mortgage in the marketplace. While countless mortgage lenders tout why they’re the best because of their operational structure, all can mostly be narrowed down to three kinds: depository institutions, independent brokers, and direct lenders. A depository institution is a credit union or bank which originates the loan and either keeps it or sells it to an outside entity (usually a middleman investment entity or sometimes directly to Fannie Mae or Freddie Mac). An independent broker is usually originates your mortgage with the power of a wholesale lending partner (another company) that funds the loan during escrow before eventually selling it as an asset to investors. A direct lender can usually, but not always, originate, underwrite, process and fund your mortgage all in-house before selling it. While it’s possible for any of these mortgage originators to have an online presence, what really separates them is how they connect with you during the process to eventually fund your mortgage, as well as how long the process takes and how smooth things go. Knowing and balancing these competitive characteristics will go a long way in helping you choose.
- Educate yourself on mortgage language. Whoever wins your business, at the end of the day, is still an originator by trade and gets paid to “originate” your mortgage. This individual (a loan officer) will be quickly sizing up your financial situation juxtaposed to the home you want to purchase to offer you a particular loan product with a particular interest rate, set of terms, and more. In general, mortgage rates slide up and down in 1/8th-percent increments, such as 3.5 percent, 3.375 percent, 3.25 percent, 3.125 percent, 3 percent and so on. Get familiar with the following terms: loan estimate, pre-qualified, pre-approved, mortgage application, documentation, underwriting, FICO score, debt-to-income ratio (DTI), loan-to-value ratio (LTV), basis points, amortization, loan term, discount points, rate lock, mortgage insurance, and PITI (principal-interest-taxes-insurance).
- Compare loan estimates. A loan estimate will help you compare apples to apples across lenders. It’s the same format across lenders and is required to provide you all the information and fees you’ll see on your loan, but may feature different wording. Make sure and read carefully. It will summarize your financial situation with a loan product and terms. Don’t be shy about asking for more information or clarification as you compare estimates, they are there to help you. Remember: the winner isn’t necessarily the lender that offers the lowest fees or interest rates. If the cost differences are only nominal, and if you like the tone and feel of certain lenders and their estimates, other factors may not be as important to you. Examine the fine print and details of the estimate to gain a clear view of what each lender is really offering you.
- Beware of the pressuring lender. This is a red flag from the get-go. No mortgage originator should be in your face non-stop, hurrying you to make a choice. Be patient, and don’t let any lender — whether online, via the phone, or in person — get the best of you through their impatience.
As home-loan lenders crowd the marketplace, credit unions have always stood out as a unique mortgage option. As not-for-profit institutions, their uncommon philosophy of putting people before profits rings even truer for first-time homebuyers, repeat homeowners, and those looking to refinance in today’s market.