While landing a competitive mortgage interest rate is often a primary goal for borrowers, finding the best mortgage lender to successfully guide you through the home-buying process can also be an important priority. But with so many choices available, how can you know which lender is the right fit for you? Read on for a look at some of the top factors to consider as you shop for the best mortgage lender for your needs.
Key Points
• Researching lenders and loan options online can help borrowers understand the market and find the best fit.
• It helps to have your finances in order before applying to ensure a smoother mortgage process.
• Ask for recommendations from trusted contacts to discover reliable lenders.
• Compare loan terms and customer reviews to make an informed decision.
• Inquire about in-house processing and communication methods for better service.
How to Choose a Good Mortgage Lender
Thanks to online reviews and comparison sites, researching a wide range of mortgage lenders and home loan options is easier than ever. But it can also be overwhelming. Here are a few strategies that could help you narrow down your choices:
Get Your Finances in Order
It can be useful to have your financial ducks in a row before you start your mortgage research. That way, you’ll have an idea of how much you’ll be able to borrow, and whether lenders might consider you a reliable or risky borrower. Some things you can do to prepare include:
• Check out your creditworthiness. You can expect lenders to look at your credit scores, credit reports, and other financial factors to assess your ability to pay back the money you borrow. So why not scrutinize your status in advance to see where you stand? (Remember, by improving your numbers, you can better your chances of getting the rate and terms you want.) If you use a money tracker app, or if you go to your bank or credit card company’s website, you can probably check your credit score without paying. You also can get a free credit report from each of the three main credit bureaus just by visiting AnnualCreditReport.com.
• Determine what you can realistically afford on your income. You may want to use a debt-to-income (DTI) ratio calculator to assess how much of what you earn every month would be going straight toward your debt obligations. Though you may have some wiggle room — depending on the type of loan you want and the lender’s requirements — a good goal is keep your potential housing costs (mortgage payment, homeowner’s insurance, homeowners association fees, property taxes) to 28% or less of your monthly gross income and your total debt payments (housing costs plus credit card payments, car and student loans, etc.) to no more than 36% to 43% of your monthly income.
Familiarize Yourself with Different Types of Mortgage Loans
Though most U.S. borrowers end up getting a conventional loan from a private lender, there are many different types of mortgage loans to choose from. There are government-backed loans, such as Federal Housing Administration (FHA) loans, that can make homebuying more affordable for borrowers — including qualified first-time homebuyers. And there are jumbo loans available for buyers who want a mortgage that exceeds the maximum loan limit for a conforming loan. It’s also important to consider if a fixed- vs. adjustable-rate mortgage is better for your needs, and the loan length you prefer (typically 15, 20, or 30 years).
Comparison-Shop Online
Comparing multiple lenders can help ensure that you find a loan package tailored to your unique financial situation. You can use an online comparison site to see types of loans, interest rates, annual percentage rates (APR), and other terms lenders are offering. Customer reviews and ratings can also be valuable when you shop for a mortgage. And don’t forget to consider how specific loan requirements, like a minimum credit score or down payment amount, might affect your eligibility.
Ask Trusted Sources for a Recommendation
Do you have friends, family members, or colleagues who recently purchased a home? You may want to ask them about their experiences and if they’d use the same lender again. Your real estate professional also may be able to recommend a reputable lender. (Keep in mind that someone who purchased their house years ago may not have had as many choices or opportunities to find the best lender for a mortgage.)
Apply for Preapproval
Most lenders offer a mortgage preapproval process that can give you a solid estimate of your loan costs and interest rate — though it doesn’t mean your final approval is guaranteed or binding. You can get preapproved through several lenders if you want to compare offers.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
Questions? Call (888)-541-0398.
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Types of Mortgage Lenders
There are many different types of mortgage lenders, and each one may have pros and cons, depending on your circumstances.
Direct Lenders
A direct lender is a financial institution (a bank, credit union, or mortgage company) that originates, processes, underwrites, and funds loans to borrowers without intermediaries. Direct lenders establish their own rates and terms. A direct lender may have a brick-and mortar location, serve customers online only, or both.
Correspondent Lenders
Correspondent lenders originate and fund their own loans but quickly sell them on the secondary mortgage market. Because of this, correspondent lenders tend to have stricter lending requirements. And borrowers can expect to work with a new loan servicer soon after they go through their closing.
Portfolio Lenders
Portfolio lenders originate and fund “nonconforming loans” — loans that don’t meet the criteria required for resale to Fannie Mae and Freddie Mac, the government-sponsored entities that purchase most U.S. mortgages. Because they generally don’t sell the loans they originate to investors in the secondary market, portfolio lenders don’t have to use the same eligibility requirements that traditional lenders use to qualify borrowers for conforming loans and government-backed mortgages.
Mortgage Brokers
A mortgage broker is actually a matchmaker, not a lender. These independent, licensed professionals don’t originate or service loans or set rates or fees. But they can help borrowers compare a wide range of mortgage options and connect them with lenders that are a good fit for their particular needs. The broker’s commission is usually a small percentage of the loan amount. It’s typically paid by the lender, but the cost is often passed down to the borrower.
Five Questions You Should Ask a Mortgage Lender
Before you settle on a particular lender and move forward with the mortgage process, here are some questions you may want to ask:
How long could it take to close?
A lender won’t be able to tell you exactly how long your loan will take to close (there may be delays that can’t be controlled), but they can give you an idea of how long it usually takes. This can help you determine if their process works for your timeline.
How much of the mortgage process will be handled in-house?
If the lender does most or all of the loan processing in-house, the operation may be more streamlined. You may also want to ask if the lender will service the loan after you close.
Do you think that the loan I’m interested in is the best fit for me?
Your lender may have thoughts on why you would benefit from one loan type vs. another. If you’re buying your first home, you can also ask about down payment assistance programs and other information specific to your situation.
What length of time do you recommend for a mortgage rate lock, and is there a fee?
A mortgage rate lock keeps your rate from changing for a set period of time, so you won’t pay more if interest rates rise before you close on your loan. You may be able to lock in your rate for 30, 60, or even 120 days, depending on the lender. The cost of the lock can also vary.
How will we usually communicate?
It can be helpful to let your lender know your preferred method of contact so you can reach each other quickly when there’s a question, potential problem, or good news to share.
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Where to Get a Mortgage
You’ll find there’s a wide range of options available when you’re ready to get a mortgage. The most popular choices include:
Conventional Banks
You can apply online at most larger banks; or, if you prefer, you can head to a local brick-and-mortar branch for one-on-one attention. Still, even if you’re a longtime customer of the bank where you have your checking, savings, and other accounts, you may want to do some research and compare their terms to what other lenders have to offer.
Credit Unions
Like banks, credit unions typically offer a variety of mortgage loans online or in person. But to become a borrower, you may have to meet certain membership requirements, such as living in a certain geographic area or working in a specific profession.
Online Lenders
Some lenders handle every part of the mortgage process online only. This can reduce their overhead costs, and online-only lenders are also known to offer faster approvals. But this approach may be daunting if you prefer to speak to someone face-to-face or want to share certain documents in person.
Mortgage Marketplaces
An online mortgage marketplace collects loan offers from different lenders in one spot. Instead of filling out separate applications for several different lenders, you can enter a few key pieces of information, and the site will list mortgage options from banks, credit unions, and online lenders.
The Takeaway
Buying a home will likely be one of the biggest investments you ever make — which is why it can be critically important to find the best mortgage lender for your transaction. Of course it’s important to look for a competitive interest rate; but when you’re moving through the complicated mortgage process, you’ll also be grateful for a lender that can offer the total package, including good customer service, a solid reputation, lower costs, and favorable loan terms.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
How to decide which mortgage lender is best?
When choosing a lender, it’s important to look at several factors, including the types of loans they offer, their reputation for reliability and good customer support, and the interest rate and other loan terms they can provide.
Where is the best place to look for a mortgage loan?
It can be useful to visit a comparison site to shop online for lenders that offer loans, terms, costs, and support services that are a good fit for your needs.
What is the 2/2/2 rule for mortgages?
The 2/2/2 rule refers to the documentation you’ll probably need to provide when you apply for a mortgage: two years of W-2s, two years of tax returns, and your two most recent pay stubs.
What not to say to a mortgage lender?
You shouldn’t ever lie to your lender or withhold relevant information, but you also don’t have to overshare about money problems, marital issues, or concerns about your job.
What is the 3/7/3 rule in mortgages?
The 3/7/3 rule sets specific deadlines for when mortgage lenders must provide disclosures and when you can officially close on your loan. Lenders must send you the initial loan disclosure within three business days of receiving your application. There is a seven-day mandatory waiting period after the initial disclosure. And if your APR changes beyond a set limit, the lender must send a new disclosure, which triggers another three-day waiting period before you can close.
What looks bad on a mortgage application?
Mortgage underwriters are trained to look for red flags when they review loan applications, including low credit scores, a high debt-to-income (DTI) ratio, recent large deposits to your checking or savings account from an undocumented source, unreliable income sources, or a recent bankruptcy.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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