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Best Ways to Choose a Mortgage Lender

By Bill Gassett | February 7, 2023

When buying a home, one of the essential tasks is choosing a lender. With so many choices, how do you make the best selection?

It can be daunting when you don't know where to start. We will discuss how to search for a lending institution you will love.

Some people will search for mortgage lenders near me if they want their bank to be nearby. While this search may prove helpful, it is also a potluck. You have no idea if you will be picking the best lender.

Let's have a look at some of the essential considerations. We will take you through the steps for choosing the best lender for your finances.

How to Choose a Mortgage Lender

Figure Out What Mortgage Program Works Best

When you start looking for a mortgage, one of the first steps should be deciding what loan terms you want. For example, do you want a 30-year fixed or adjustable-rate mortgage?

A fixed-rate mortgage will give you more stability if you stay in the home longer. However, if you want a lower rate and only see yourself in the home for five years or less, an adjustable rate might be the best way.

Once you have figured out the loan term and whether it is fixed or assumable, you should consider the loan type.

What Type of Loan Program Works For You?

Understanding the perfect mortgage fit for you is part of preparing to get a home loan.

There are several types of mortgage programs for buyers to choose from. Some of the most popular include conventional loans, FHA, VA, and USDA. Each of these types of loans has its pros and cons.

Some will have specific qualifications. For example, a VA loan is excellent because it is a no-down payment option. However, to qualify, you or your spouse must either serve or have served in the military.

VA loans are specifically for the armed forces. A USDA loan is another no-down payment loan option. You must purchase in a rural area to qualify for a USDA loan. Generally, the population of the community you're purchasing in needs to have a population under thirty thousand.

FHA loans are very popular, especially for first-time home buyers. The FHA loan offers a low down payment requirement of 3.5%. They also have relaxed credit score requirements compared to other loans.

You can also get an FHA 203k loan when buying a fixer-upper. It is a loan program specifically for homes that need work.

Conventional loans are the most popular loan program. Working as a real estate agent for the past thirty-seven years, more clients who have used conventional mortgages than any other.

You can put down a conventional loan for as little as 3 percent.

Compare Rates and Terms Among Mortgage Lenders

Once you have determined your mortgage program, it is time to research choosing a mortgage lender. You will have the mortgage for a while, so the terms you receive will impact your finances.

You can start your search online to find a lender. Some buyers prefer to choose a local lender, but you may get a better deal from a mortgage company out of the area.

Remember that the rates you see are estimates and can change at a moment's notice. Lenders will also need to pull your credit and take a mortgage application to provide rates and terms for you.

With several quotes, you can start narrowing down your list of preferred mortgage lenders.

Get Pre-Approved Once You Choose a Lender

If you speak to any Realtor, they will speak about the importance of getting pre-approved for a mortgage. It is highly unlikely that the listing agent and seller will take you seriously without one.

Being pre-approved provides the seller and real estate agent with evidence that you can get a loan for the requested mortgage amount.

When you're ready to make an offer on a home, you'll be able to do so. Mortgage lenders will need critical pieces of information to grant your approval.

They will need the following information:

  • The social security numbers of whoever will be applying for the mortgage
  • All the account information at your financial institutions.
  • A rundown of your current debts, including car loans, student loans, credit cards, etc.
  • Lenders will require two years of your tax returns, 1099s, and W-2s.
  • You will need to verify your employment and current salary.
  • Lastly, the lender verifies how much you're putting down and asks what account the money is coming from.

Compare The Lender's Loan Estimates

A loan estimate is a rundown of all the pertinent information regarding your loan. It will include all the details of the mortgage the lender will provide, including the interest rate, monthly payment, and all the costs associated with the loan.

Comparing loan estimates from at least a few lenders would be best. You should confirm everything in the document matches your expectations.

Carefully compare each lender's offer and then choose the lender that works best.

Improve Your Financial Standing to Get The Best Rates

Improving your credit score is one of the best ways to get better mortgage rates and terms.

A higher credit score shows potential lenders you are a responsible borrower who pays bills on time and is less likely to default on loans.

Lenders usually offer better terms to borrowers with higher credit scores, such as lower interest rates and closing costs.

Improving your credit score can take time, but it can have a significant impact on the mortgage rates you can get.

Lenders may also be willing to work with you if you are willing to put down a larger down payment or offer other types of collateral.

Final Thoughts

The time and effort you put into choosing a mortgage lender will be well worth it. Getting better terms could save you thousands of dollars over the first few years of the loan.

Not a bad deal for a little bit of extra homework and patience.

Bill Gassett is an authority in the real estate industry with 38 years of experience. Bill is well respected for his informative articles for buyers, sellers, and fellow real estate agents to make sound decisions. His work has been featured on RIS Media, the National Association of Realtors, Inman News, Newsbreak, Credit Sesame, Realty Biz News, and his own authoritative resource, Maximum Real Estate Exposure. He has been on of the top RE/MAX agents in New England over the last two decades.
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