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Tips for Choosing a Mortgage Lender
Dated: January 25 2019
The process of buying a house isn't a one size fits all philosophy. Choosing the right lender for you and your situation can save you time, money and anxiety. As with any partnership, it's important to choose wisely and trust your real estate agent to guide you in the right direction.
There are three types of mortgage lenders - credit unions, retail banks and mortgage banks. There are also mortgage brokers, who compare loan products across leners to help you find the right one. Before narrowing down candidates, let's talk about where and what to look for.
Examples of retail banks are Chase, Huntington, Bank of America, etc. Retail banks do their own underwriting (investigate finances) so they can sometimes offer lower fees and less stringent credit requirements. You would work with a loan officer, who would receive a commission for writing your loan.
These are not for profit and customer owned. As a result, they are not beholden to stakeholders and can typically offer lower fees and more personal service. The problem is they have few branches so it's not as convenient.
In order to apply for a loan, you must be a member of the credit union's community. It's not difficult to become a member however. With a credit union loan, you will work with a loan officer who receives a commission.
These banks only offer mortgages, no other financial products. Examples are AimLoan or PennyMac. Many online lenders, such as Rocket Mortgage, operate as a mortgage bank. You will work with a loan officer, who receives a commission from the lender's fees for writing your loan. These types of lenders offer less hand holding.
These are basically personal shoppers, who act as a liason between home buyers and mortgage lenders, to help people find the lowest rates. These brokers leverage their relationships with lenders, something individual buyers can't do. The benefit is convenience and speed.
You would work with an agent who acts as an independent contractor. They typically charge a 1-2% fee of the loan amount, which is either paid by the lender or borrower.
It's Important to Shop Around
Over the life of the loan, small differences can add up to thousands of dollars. Before choosing a lender:
- Thoroughly research any retail bank, credit union, mortgage bank, broker, etc. Make sure that you know what they can offer you.
- Interview lenders.
- Seek advice.
- Ask your real estate agent for a second opinion as they have experience working with many lenders.
There's a difference between being pre-qualified and pre-approved. Pre-approval is proof that you can buy so you are in a better position when you make an offer. It's evidence to your real estate agent and the seller that a financial instituion is willing to finance your purchase.
In most markets, sellers will expect that you are pre-approved when making an offer. You are also more likely to have your offer accepted over someone that has to go back to the bank to get approved.
A pre-qualification is just an approximation and not necessary.
To get pre-approved, you must allow a lender to pull your credit.
- Borrowers with credit scores of 760 or higher can qualify for the lowest interest rates.
- Credit scores below 650 may need to apply for non-conventional , such as FHA, which is a government backed loan that requires a minimum score of 580 but lets borrowers put only 3.5% down payment.
- Below 580 can still qualify for FHA loans but must make at least a 10% down payment.
After you get pre-approved, you'll receive a loan estimate.
Pre-Approval by Three Vendors
A loan estimate shows the terms including interest rate, length of loan, costs of taxes and insurance, change over time and other important financials. By comparing these estimates, you can choose the right option for you.
Getting pre-approved early can give you the edge over other buyers. The amount you're pre-approved for helps determine your price range, which can help alleviate some frustration. It sends a signal to your agent and seller that you are serious and it can make the entire process faster.
Now that you have researched all of your lending options and have gotten pre-approved, you are ready to work with your real estate agent to find your dream home. Congrats!
I was born and raised in Columbus, graduated from Bishop Hartley High School, then received a business degree from Butler University in Indianapolis. I have 16 years of residential real estate with bo....
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