How to choose a mortgage lender

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  • Decide if you want to work directly with a lender or use a broker, then find a company that offers the type of mortgage you need.
  • By applying for pre-approval from several lenders, you can compare interest rates and loan amounts.
  • Loan estimates help you see rates, closing costs, and monthly payments from different companies.

Choosing the best mortgage lender is one of the most important decisions in the home buying process. The lender you choose determines how much you can borrow, your interest rate and the fees you will pay. Here are some tips for choosing a lender that meets your needs.

Choose a type of mortgage lender

There are many types of lenders, and they differ from each other in practical ways, such as how they access funds for your loan. But as a consumer, you’ll likely be looking at two main types of lenders:

  • Direct lenders. You work one-on-one with a direct lender, and the company provides your financing. A direct lender can be a bank, credit union, or lending company such as Better Mortgage or Carrington.
  • Mortgage brokers. A mortgage broker is the intermediary between you and a lender. A broker helps you compare lenders and find the best deal, but you may have to pay them.

Choosing between these two can be tricky because some lenders only work with brokers, and others don’t work with brokers at all. Brokers do a lot of the work for you, but you may prefer to work directly with lenders if you just want to compare a few of your best options.

Find a lender that offers the type of mortgage you need

Not all lenders offer every type of mortgage. For example, Lender A may only offer conforming and jumbo mortgages, but your credit rating is too low to qualify for either. You’ll probably want to go with Lender B, which offers FHA mortgages to people with lower credit scores.

Most lenders have conforming and jumbo mortgages. Conforming mortgages are what you might think of as “ordinary” mortgages, and jumbo mortgages are home loans for larger amounts. But if you need a specific type of loan, you can check out Insider’s lists of the best lenders for each type:

  • FHA Mortgage Lenders. Lenders with Federal Housing Administration-backed mortgages cater to borrowers with lower credit scores and smaller down payments than those who focus on conforming mortgages.
  • VA Mortgage Lenders. Lenders with Department of Veterans Affairs-backed mortgages work with serving military and veterans to secure loans with no down payment.
  • USDA mortgage lenders. USDA-backed mortgages are for low-to-moderate income borrowers buying homes in rural areas, and most lenders don’t require a down payment.

How to compare mortgage lenders every step of the way

Mortgage prequalification

Mortgage prequalification is one of the first steps in the home buying process. When you apply for prequalification, you give a lender your financial information, such as your credit score and income. Then the lender gives you an estimate of how much they can lend you, the types of mortgages you qualify for, and the interest rate you could pay.

The information you see when you’re prequalified isn’t set in stone, but applying to multiple lenders can help you compare basic details to narrow your search. For example, you may see that you qualify for a conforming mortgage with one lender but not the other because one requires a higher credit score.

Mortgage pre-approval

Mortgage pre-approval is similar to pre-qualification, but there are key differences. You apply for pre-approval when you’re ready to start shopping for homes. With a pre-approval, a lender will verify the financial information you provide and give you a more concrete estimate of what you can afford and how much your loan will cost. By applying for pre-approval from several lenders, you can compare official mortgage rates.

Try to limit your requests to a period of 30 to 45 days. A lender does a credit check when processing your pre-approval request. A bunch of inquiries on your report can hurt your credit score, unless it’s to hunt for the best rate. If you limit your rate purchases to about a month, the credit bureaus will understand that you’re looking for a home and shouldn’t hold each individual claim against you.

Mortgage estimate

Once you have chosen a home, you will apply for a mortgage and receive a loan estimate from a lender. The estimate shows all the costs of buying a home, including how much you can borrow, the interest rate, an itemized list of closing costs, and any additional charges such as prepayment penalties. The last page includes numbers to easily compare your offer to offers from other lenders.

Between qualification, pre-approval and loan estimate, the loan estimate is the most detailed and official of the three. Receiving this document from more than one lender will help you compare small details.

Read each document carefully

Read your pre-approval letters and loan estimates carefully to make sure you understand what you would pay with each lender. If you don’t understand a term or fee, don’t be afraid to ask the company.

Once you have chosen a lender, you will receive a closing disclosure at least three days prior to closing. A final disclosure provides a detailed summary of your mortgage, and you should read the fine print to make sure there are no errors, compare it with your loan estimate, and ask questions.

You may even decide to hire a lawyer to read your final disclosure, but be prepared to pay several hundred dollars.


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