Tips for Choosing the Right Mortgage Lender

If you’re a first-time homebuyer, you might be wondering where to start, what lender to choose, and what loan product to go for. While your choices should always be dictated by your needs and goals, there are some general rules you can follow to help you navigate the process.

Comparison Shop

The key to getting the best possible deal is the same across the board, whether you’re buying a good pair of shoes or a new home. Lenders measure risk differently, so while some proprietary algorithms place greater value on your credit score, others might emphasize overall credit history and income.

Most experts recommend you get at least three quotes from different banks or financial institutions before committing to one lender. It doesn’t hurt to shop around and compare your options, especially if you can snag a lower APR, better terms, or fewer fees and penalties.

Options Galore

If you’re still unsure of which loan product is the best for your situation, a possible solution could be to do business with a lender offering a wealth of options. Besides comparison shopping, this is another surefire way to identify lenders that can meet your needs. The more options at your disposal, the better your odds of taking out a loan you can comfortably afford.

There are USDA loans available for those living in rural areas, VA loans for veterans and active service-members, and Jumbo loans for those looking to buy in highly competitive housing markets, but there are many more options. Do your research first, and then sit down with your loan officer to go over the types of loans you might qualify for.

Consider the Type of Lender

There are three main types of lenders: direct lenders, brokers, and marketplaces. While a direct lender may offer a handful of loan options and more accurate APR ranges, brokers and marketplaces can offer you greater variety and the possibility of comparing rates from multiple lenders. Working with each of these has its unique pros and cons, and the one better suited to your needs will depend on your priorities.

If you’re looking to compare options and learn as you go along, a marketplace or broker might be your best bet. If, on the other hand, you already know what you’re looking for and just want double check whether you can snag a better rate, you can compare your direct lender of choice with similar options to ensure you’re getting the best possible deal.

Good Communication is a Must

If you’re buying a property for the first time, you’ll need all the resources you can get to help you navigate the purchase process. Great lenders generally offer helpful articles and tools, 24/7 support from company representatives, and expert guidance from knowledgeable loan officers.

Do business with a lender that’s more than willing to answer any and all questions you may have. If you have doubts about your lender’s reputation for customer service, consult theConsumer Financial Protection Bureau (CFPB) or the Nationwide Mortgage Licensing System (NMLS). Both of these are great sources to obtain information about consumer complaints and regulatory actions taken against lenders on a national level.

Keep in mind, however, that a high number of complaints doesn’t always indicate a lender is disreputable, especially if they operate nationally and have a broad customer base. What regulatory actions and consumers review can tell us is if there are issues to watch out for regarding a particular area of a lenders’ products or services.

Pre-approval is a Plus

Pre-qualification and pre-approval are often used interchangeably, but generally mean very different things. Pre-qualification refers to one of the first steps in the mortgage process, when you provide lenders your personal information and they inform you of how much you can afford to borrow from them. Lenders don’t need to perform a credit check to pre-approve your application, so the process is quick and has no credit consequences.

Pre-approval, on the other hand, requires you to provide financial documentation including evidence of employment or income. A hard credit pull is also required for pre-approval, which means you credit score could drop by a few points. The benefit of getting pre-approved is that sellers take your offer more seriously, as you’ve already been screened by the lender and have been preemptively deemed eligible.

Neither pre-approval nor pre-qualification are guarantees that you’ll receive a loan, but these can make you seem like a serious buyer and give you a competitive advantage during the bidding process.

Before you apply for a mortgage with any lender, experts advice that you work on paying down your debt, fixing any mistakes in your credit report, writing a cover letter for the sellers explaining why you want to buy the property, locking in your lowest rate, and applying for different types of loans within a 45-day period to avoid further impact to your credit score.

Similarly, calculate all the costs associated with your loan beforehand to make sure you can actually afford the mortgage. If your down payment exceeds what you’ve saved up for the home purchase, reconsider your strategy and be wary of depleting your savings until you’ve exhausted all other options.