4 things to consider when choosing a mortgage lender
Choosing a mortgage lender is a process, but it doesn't have to be a difficult one. Here are four key ways to determine whether a lender is right for you. (iStock)
Although the pandemic has produced a multitude of negative economic and personal finance effects, the housing market is one industry that has posed several benefits to families this past year. When the Federal Reserve cut rates over a year ago, it subsequently had a domino effect on mortgage rates and refinance rates, which sent them plummeting below 3%.
According to Fannie Mae’s Quarter 4 Mortgage Lending survey, consumer demand for mortgages and new mortgage loans increased from 55% in 2019 to nearly 70% in 2020. While it’s still a great time to get a mortgage or refinance, it’s also important to choose the right lender for your needs, just as you would for an auto loan, personal loan or for student loans.
WILL A NEW CREDIT CARD AFFECT MY MORTGAGE APPLICATION?
Choosing the wrong lender or type of mortgage can easily cost you hundreds of dollars per month, so consider these key factors when narrowing down the right mortgage lenders for your home loan:
- Price
- Technology
- Servicing
- Lending officer vs. broker
You can start by using Credible’s online tools to find the best mortgage rates and prequalify for a home loan within minutes. Let's break down a few tips for finding the right mortgage lender for you during the home buying process, whether you're looking for USDA loan, conforming loan or others.
Price
The overall cost of a mortgage is a huge indicating factor to consider when choosing a lender and loan products. While you can control how much money you put down, other costs like interest, taxes and insurance will all factor into the price of your real estate loan.
For example, if your down payment is less than 20%, you will likely be required to get private mortgage insurance, which helps cover the lender if you're unable to make your mortgage payments for any reason.
"A lot of lenders have origination fees which represent around 1% of the loan amount," says Loren Howard, founder of Prime Plus Mortgages. "Not to mention, there’s also closing or title fees that can affect your principal balance and overall mortgage costs."
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Howard also mentioned how many of these costs are rolled into your total loan amount or required to be paid upfront during closing. As a result, it’s best to get exact numbers from lenders regarding their fees and shop around for the best terms. Credible can introduce you to multiple mortgage lenders and provide you with personalized rates in just minutes.
Technology
Thanks to modern technology, obtaining a mortgage doesn’t have to be such a tedious process anymore. While there may still be a lot of paperwork for you to fill out, most lenders now allow you to do this online and submit documents conveniently through an online lender portal.
However, there is still a technology gap across mortgage lenders. Some companies have streamlined the document-gathering and loan origination process, while others are still using paper documents and processing with a slower, manual process.
Check with lenders in advance to see how they accept paperwork and process loan application details as you narrow down your top choices.
Servicing
It’s important to realize that the lender you choose may not actually service your mortgage after closing. A mortgage servicer is the entity holding your mortgage and that’s who you make payments to.
Chris Birk, the Director of Education for Veterans United Home Loans stated: "Servicing is essentially everything related to the life of your mortgage after you close, which includes collecting monthly payments, making sure escrows for property taxes and homeowners insurance are in order and handling loss mitigation issues."
Birk added that some lenders might sell your loan right after closing while others might hold your loan for years and then sell down the road.
DOES REFINANCING YOUR MORTGAGE LOWER YOUR CREDIT SCORE?
While what happens with your servicing does not affect your interest rate or the terms of your loan, you may want to ask your lender if they provide in-house mortgage servicing if this is important to you. During the mortgage process, you might build a relationship with the loan officers. If you really like your lender and chose them specifically, it makes sense to keep your mortgage with them if possible.
Lending officer vs. broker
There are so many different words and titles used during the mortgage process. One thing that can be a little confusing is dealing with a lending officer vs. a mortgage broker. Both of these are not one in the same. A loan officer typically offers mortgage options from only the financial institution they work for. A mortgage broker acts as a matchmaker between you and a number of different mortgage lenders.
Mortgage brokers may charge extra fees since they are helping you shop around. With a lending officer, you don’t pay any fees since you’ve likely decided you are getting a mortgage from their financial institution (or bank).
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Credible does not charge any fees to help you shop around and find the best mortgage lender. Comparing rates and terms is important to do before you settle on a single lender. Even if you’ve heard good things about a particular lender, it’s often best to compare all your options before making a decision.
The bottom line
Choosing a lender is a process – in addition to reviewing different types of loans – but it doesn’t have to be a difficult one. Get clear on what you’re looking for and what’s important to you. Understand that there may be extra fees, fine print and other factors that can impact your experience.
Also, be sure to visit Credible to prequalify for a mortgage and find the best lender for you. In just three minutes, Credible can help you find the top lenders and mortgage rates to choose from without pulling your credit report.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at moneyexpert@credible.com and your question might be answered by Credible in our Money Expert column.