How To Choose A Mortgage Lender?

How To Choose A Mortgage Lender?

It is necessary to shop around in order to find the best mortgage lender. Consider a variety of options, including your bank, a local credit union, online lenders, and others. Examine each offer and compare the specifics of the interest rates and loan terms offered. Also inquire about down payment requirements, mortgage insurance, closing costs, and other fees of all kinds.

The Best Mortgage Lender Can Be Found In 6 Simple Steps

There are a few things you can do before you start shopping to ensure that you get the best deal:

• Strengthen your credit
• Determine your budget
• Know your mortgage options
• Compare rates and terms from multiple lenders
• Get preapproved for a mortgage
• Read the fine print

Step 1: Work on improving your credit score.

Give your financial situation a thorough examination long before you begin looking for a mortgage lender and applying for a loan. If necessary, make adjustments to improve your standing. This entails obtaining your credit score as well as your credit reports.

Identifying errors, late payments, delinquent accounts in collections, and high balances on your credit reports should be your first step if your score could use some improvement. According to Jason Bates, vice president of the Purchase division for American Financing, a national mortgage lender based in Aurora, Colorado, paying down each of your credit cards to less than 30 percent of the available credit and making on-time payments are the most effective ways to improve your credit score, according to Bates.

Along with good credit, lenders want to know that you will be able to handle your current debt in addition to a new mortgage payment, which is why they will look at your debt-to-income ratio (DTI). Using this formula, you can compute a percentage by adding all of your monthly debts together and dividing them by your gross monthly income. Although many lenders require a debt-to-income ratio (DTI) below 43 percent, some loan programs allow for DTI ratios up to 50 percent.

You should avoid taking out new loans or making large purchases on your credit cards for at least three months before applying for a mortgage in order to keep your debt-to-income ratio manageable. You should adhere to this rule until you have completed your mortgage application, as lenders can pull your credit report at any time during the application process and until you close.

Step 2: Establish a financial plan.

Finding the right mortgage requires having a firm grasp on how much house you can afford, which is an essential part of the process. You could be approved for a loan that would completely deplete your savings account and leave you with no room for unexpected expenses, but taking out such a loan could be a bad financial move for you.

In order to preapprove you, lenders look at your gross income, outstanding debts, and revolving debt, according to Bates. When making their calculations, they do not factor in other monthly expenses such as utility and gas bills, daycare, insurance premiums, or groceries.

Consider these types of expenses, as well as your other financial objectives, to get a more accurate picture of what you can afford. For the purpose of calculating how much you should spend on a mortgage payment, take a look at your monthly net income.

According to Bates, “create a line-item budget for all of your monthly expenses, and be conservative about the amount of your monthly mortgage payment.” She adds that this is particularly important for first-time homebuyers who may not be able to find their ideal home right away.

Step 3: Become familiar with your mortgage options

One of the most important aspects of finding the best mortgage lender is being able to communicate in their language, which includes understanding the different types of mortgages. Some preliminary research can also assist you in distinguishing between mortgage facts and fiction.

Mat Ishbia, president and CEO of United Wholesale Mortgage, says that traditionally, when people think of getting a mortgage, their first thoughts are of going to a bank or that they need a 20 percent down payment to be able to afford a home. This is a dated way of thinking, says the author.

There are many lenders who will offer conventional loans with down payments as low as 3 percent, and some government-insured loans require no down payment or as little as 3.5 percent. Consider FHA and USDA loans, and if you are a veteran, you should look into VA loans as an option.

Keep in mind that many lenders will charge you a higher interest rate and require you to purchase mortgage insurance if you put less than 20% down on your home.

Step 4: Shop around for the best interest rates and terms from various lenders.

Not all lenders are created equal, and choosing the first one you speak with is not always the best choice. Make sure you shop around with several lenders — banks, credit unions, online lenders, and local independents — in order to get the best deal possible on interest rates, fees, and terms. Look for a lender who communicates with you in the manner that you prefer, whether that is online, via text, or in person.

By not shopping around, you may be putting money at the risk of being ripped off. Several studies, including those conducted by the Consumer Financial Protection Bureau and Freddie Mac, have found that borrowers can save thousands of dollars over the course of a 30-year mortgage by shopping around.

Get in touch with us right away to learn more about our rates and terms.

Step 5: Obtain a mortgage preapproval letter.

Obtaining a mortgage preapproval from three or four different lenders is really the only way to get an accurate loan pricing estimate because lenders conduct a thorough review of your credit and financial situation when you obtain a preapproval.

Lenders may have different documentation requirements for preapproval depending on their business model. In general, you will be required to provide the following information:

• A driver’s license or other government-issued photo identification.
• The Social Security numbers of all borrowers are required (to pull credit).
• A history of residential addresses, as well as the names and contact information for landlords from the previous two years.
• Pay stubs from the previous 30 days are required.
• Federal tax returns, 1099s, and W-2 forms from the previous two years.
• For the past 60 days, you will need to print out bank statements for all of your accounts.
• All financial accounts (checking, savings, brokerage, 401(k), and other retirement savings plans) are listed in one place.
• In addition to credit cards, personal and auto loans, student loans, alimony, and child support, a comprehensive list of all ongoing and fixed debt payments should be kept on hand.
• A summary of your employment and income history, as well as the name and contact information for your current employer
• Information about your down payment, including the amount, the source of the funds, and gift letters if you are receiving assistance from a family member or friend.
• Any recent liens or legal judgments against you or other borrowers, such as those brought by the Internal Revenue Service (IRS), in bankruptcy, collections accounts, or lawsuits, should be included.

Keep in mind that a mortgage preapproval does not necessarily imply that you are in the clear. Lenders have the right to re-verify your credit, employment, and income histories, as well as your assets, at any point in the process. If you take out a new car loan, for example, this will alter your financial picture and may cause your mortgage to fall behind schedule.

It is recommended that borrowers “hold tight” after receiving preapproval and refrain from opening new lines of credit, moving money around in their bank accounts, or changing jobs before and during the mortgage application process.

Step 6: Carefully examine the fine print.

We understand why your eyes glaze over when you read mortgage documents. However, if you do not read them carefully and there are any errors or surprises, you may experience buyer’s remorse later on in the process. Please see the following explainer on the loan estimate form, which lenders are required to provide you with within three business days of receiving your mortgage application.

Pay close attention to your interest rate, monthly payments, lender and loan processing fees, closing costs, and the amount of money you have to put down as a down payment. If your credit and financial profile remain unchanged from the time of preapproval to the time of closing, none of these items should change significantly.

Lenders will occasionally provide credits to help reduce the amount of cash that must be paid at closing. Be aware, however, that these credits may cause your loan’s interest rate to rise, resulting in you having to pay more in the long run.

You will notice a slew of third-party costs as you compare loan estimates from different lenders, including lender’s title insurance, title search fees, appraisal fees, recording fees, transfer taxes, and other administrative costs. You may be able to negotiate some of these closing costs, but keep in mind that lenders do not determine the fees for third-party services; rather, they only determine their own fees.

Always feel free to ask questions if you are unsure about a fee or notice an error in the documentation (such as a misspelled name or a wrong bank account). Getting ahead of any problems early on can save you a lot of time and aggravation in the long run.