How to Choose a Mortgage Lender?

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As the quote goes…”The universe of mortgage lending has gotten to the point where there is a place in it for everybody.” So, before you start gathering quotes from mortgage lenders, it's super important to find the best mortgage lender for you.

Even though most lenders offer similar mortgage processes, there can be some big differences that could save you cash like lower closing costs, interest rates, flexible repayments, first-time homebuyer programs, quicker approvals, and so on. Let this be your go-to guide to figure out which mortgage lender is the best match for you and your wallet.

See also : How to buy a mortgage (Easy 10-Step Guide)

Getting to Know Mortgage Options

As you're trying to pick the right lender, it's necessary to know the 6 different types of mortgage lenders available-

Correspondent Lenders	Direct Lenders	Hard Money Lenders
Mortgage Brokers	Portfolio Lenders	Wholesale Lenders

Let's get to the bottom of what each of these means.

• 1. Correspondent lenders

  Correspondent lenders are the middlemen of mortgage lending. They use their funds to finance mortgages but then sell them off to secondary markets like larger financial institutions. It's a bit like a local bakery baking cakes and then shipping them to a supermarket to sell, but you won’t know which local bakery it is.

  These lenders offer more flexibility in loan terms, showcase a wide range of loan products, and may also get you lower interest rates and fees compared to big banks. For instance, a regional bank might function as a correspondent lender by originating mortgages and then selling them to bigger banks or government-supported entities like Fannie Mae and Freddie Mac.

• 2. Direct lenders

  Direct lenders are like the big players in the mortgage game, such as banks, credit unions, and online mortgage lending platforms. They don't involve any middlemen and deal directly with borrowers, offering their own loan programs and criteria. It's like going directly to the heart of the matter for your mortgage. While they offer convenience and a broad range of services, they might have more stringent criteria.

  Imagine walking into a bank branch of a well-known institution like Wells Fargo or applying for a mortgage through a digital platform like Rocket Mortgage - that's what dealing with a direct lender looks like. These financial entities extend mortgage loans directly to borrowers, managing every aspect from application to closing.

• 3. Hard money lenders

  Hard money lenders are typically individuals or small firms offering short-term loans backed by real estate, focusing more on property value than borrower credit. These are the daring players of the mortgage game, often stepping in when regular lenders hesitate. They care more about how much the property is worth rather than checking your credit history, foreclosure, or bankruptcy record.

  They're a hit among real estate investors who need speedy funding for fixing and flipping homes or properties that don't qualify for regular loans. You'll get quick approval and fast disbursement, but the loan terms are short, usually six months to a year, up to five years max. But beware, they come with higher interest rates and fees, so they're best for short-term or unique situations.

  They're the "Plan B" lenders, available when traditional banks decline. An example could be a wealthy individual or a small investment company lending money to real estate investors for house flipping.

• 4. Mortgage brokers

  Mortgage Brokers is a licensed professional who are like matchmakers between borrowers and lenders. They act as your personal shopping assistants, connecting you with various lenders to find the perfect loan match. They handle all the paperwork, negotiate terms, and guide you every step of the way.

  Working on a commission basis, mortgage brokers earn their keep by securing you the best loan options from multiple lenders. It's like having a mortgage expert on your team, ensuring you get the best deal possible.

• 5. Portfolio lenders

  Imagine a local credit union that's not into selling mortgages but prefers to keep them close, just like your trustworthy buddy who's always got your back. Portfolio lenders don't send your mortgage off to the secondary market. Instead, they keep it in their own investment pool, allowing them to customize loan options to fit your needs better. They're all about building relationships and might even look beyond credit scores when assessing your application.

  By keeping loans in-house, they aren't bound by strict rules from external investors. This allows them to be more flexible with their lending criteria, offering unique loan terms and products you may not find elsewhere.

• 6. Wholesale lenders

  Wholesale lenders work behind the scenes, offering wholesale rates to mortgage brokers who then sell the loans to borrowers. They're like the suppliers that provide goods to retailers. Wholesale lenders don't deal directly with the public, so you won't see their name on billboards or TV ads. Instead, they depend on brokers to submit loan applications.

  For example, a company like Caliber Home Loans might be a wholesale lender, providing loans to mortgage brokers who then offer them to consumers. They offer competitive rates and terms, making them a popular choice for borrowers who want to shop around for the best deal.

How to Compare Loans From Different Mortgage Lenders?

Now that you know who the players are, it's essential to do your homework to ensure you're getting the best deal possible. Let's talk about how you can compare loans from different mortgage lenders in an easy way!

Here are 7 simple ways you can do this.

• 1. Interest Rates

  Shop around with lenders to secure the top deal. Lower rates mean you pay less each month. Even a 1% difference in rates can save you thousands over the life of your loan.

  📝 Noteworthy Tip
  
  Keep in mind, searching for the right loan won't heavily impact your credit score. Multiple mortgage inquiries within a 45-day period are treated as a single inquiry on your credit report.

  
  

• 2. Loan Terms

  Consider the length of the loan (e.g., 15 years, 30 years) and whether the interest rate is fixed or adjustable. Choosing longer loan terms reduces monthly payments, but increases total interest paid over time. Fixed-rate loans have stable payments, while adjustable-rate mortgages (ARMs) can change over time. A 30-year fixed-rate mortgage is the most common choice, but choosing the best fixed-rate mortgage, like a 15-year term, can save you money on interest in the long run.

• 3. Fees

  Lenders often charge fees for processing your loan, like origination fees, appraisal fees, or underwriting fees. These can add up, so it's essential to understand all the fees involved and factor them into your decision.

  💸 Money Tip
  
  Some financial institutions provide lender credits to reduce your closing costs. But keep in mind, these credits can bump up your loan's interest rate, leading to higher overall payments in the long run.

  
  

• 4. Down Payment

  This is the upfront money you pay towards the purchase of the home. A higher down payment usually means lower monthly payments and less interest over time. However, some lenders offer loans with low down payment options, which can be beneficial for buyers with limited savings.

  While a 20% down payment is ideal to avoid private mortgage insurance (PMI), some lenders offer loans with as little as 3-5% down.

• 5. Customer Service

  Good customer service is crucial when dealing with something as important as a mortgage. Find lenders known for great customer service. Check online reviews and ask friends or family for recommendations to ensure you'll get the support you need throughout the loan process.

• 6. Loan Options

  Different lenders offer various types of loans, such as FHA loans, VA loans, conventional loans, and jumbo loans. Each type of loan has its own requirements and benefits, so it's essential to explore your options and choose the one that best fits your financial situation and goals.

  Learn More : 10 Types Of Mortgage Loans For Homebuyers

• 7. Total Cost

  It's crucial to consider the total cost of the loan, including the principal amount, interest, and fees. Compare the total cost of loans from different lenders to determine which option is the most affordable in the long run. Don't just focus on the monthly payment; look at the big picture to make an informed decision.

  You can use KreditSanta's mortgage affordability calculator to see how much house you can afford and what your monthly mortgage payment might look like.

  💡 Important Note
  
  When comparing lenders, check out APRs, not just interest rates. APR includes both the interest rate and fees, giving a clearer picture. You might find a lender with a lower interest rate but a higher APR, so it's important to consider both.

  
  

5 Tips to Find Your Ideal Mortgage Partner

Find your ideal mortgage partner effortlessly with these 5 must-know tips!

• ➙ Consider Specialized Lenders

  Think about what you really need and look for lenders who are pros in certain loan types, like FHA or VA loans, if they fit your situation.

• ➙ Get Recommendations

  Ask friends, family, or colleagues who recently bought a home about their lender experiences. Personal recommendations can provide valuable insights into a lender's reliability and service quality.

• ➙ Check Reviews

  Look for online reviews and ratings for potential lenders. Websites like Yelp, Google Reviews, and the Better Business Bureau can give you an idea of other borrowers' experiences with a particular lender.

• ➙ Ask Questions

  Don't hesitate to ask plenty of questions to your potential lenders about their loan products, application process, and customer support. A reliable lender will openly answer all your questions and be clear about everything.

  Here are some questions worth asking:

  • What interest rates are available and what fees come with them?

  • Can you provide an estimate of closing costs and fees?

  • Are there any penalties for prepayment or early payoff

  • Any special programs for first-time buyers?

  • Can I complete the process online?

⏭️ More Info: 20 Questions To Ask A Mortgage Lender

• ➙ Get Preapproved

  Consider getting preapproved for a mortgage with multiple lenders to compare offers.Preapproval not only gives you a clear idea of how much you can borrow but also allows you to see how different lenders stack up in terms of rates and terms.

  Remember, preapprovals typically last for 30 or 60 days and may require renewal if your home search takes longer than expected.

  
  

  For preapproval, you'll typically need to provide:

  • Photo ID & Social Security number.

  • Pay stubs from the past 30 days.

  • You'll need your federal tax returns from the last two years, along with your 1099s and W-2s.

  • Printouts of statements for all financial accounts (checking, savings, brokerage accounts, 401(k), etc.) for the past 60 days.

  • List of all debts, including credit cards, loans, and support payments.

  • Employment and income history, along with current employer contact info.

  • Down payment details, including amount, source, and gift letters if applicable.

By following these tips, you can find a mortgage partner who not only offers competitive rates but also provides excellent service and support throughout your homebuying journey.

From where can you get a mortgage?

Getting the hang of mortgage lending basics early on is key to getting started right and getting to know the different types of mortgage lenders. Mortgages aren't all the same, so understanding how lenders differ and the kinds of loans they offer is important. If you're all set to begin, start exploring - KreditSanta rates lenders based on factors like affordability, availability, and customer experience, helping you pick the best mortgage lender for your unique situation.

Frequently Asked Questions