How To Choose a Mortgage Lender

It’s the most important decision besides choosing your home

 Discussion between young couple and banker with a calculator
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Aside from deciding on a home, choosing your mortgage lender may be one of your most important homebuying decisions. That’s because your home is most likely the largest purchase you’ll ever make, and the lender can determine everything from your interest rate to the various fees you’ll have to pay.

Here’s what you need to know about choosing the right mortgage lender for you.

Key Takeaways

  • There are various types of mortgage lenders that offer different rates and terms, which is why it’s important to comparison shop and get multiple quotes.
  • Your credit score can determine your mortgage terms and will often affect your minimum down payment.
  • Many lenders offer mortgages for first-time homebuyers or borrowers with bad credit.

Types of Mortgage Lenders

There are various types of mortgage lenders, including banks, credit unions, and traditional mortgage lenders, each with their own requirements, rates, and terms.

Banks

Using a bank can be a strong option for borrowers who want all of their finances in one place, according to Brad Jones, chief marketing officer of Newrez and a licensed loan originator. However, he told The Balance by email that the process can take longer.

Credit Unions

You can usually get a lower loan rate and lower fees at a credit union than a bank, according to Jones. Compared to other types of lenders, however, Jones said they tend to have limited loan products. “Also, borrowers must be a member of the credit union in order to get their loan through that entity.”

Mortgage Lenders

You can expect more loan options with mortgage lenders, and they tend to be faster than banks.Loan origination, underwriting, and servicing are typically taken care of entirely in-house,” Jones said. In addition, he said these types of lenders are more flexible with borrowers who have impaired credit.

Most lenders will take your credit score, credit history, income, and assets into consideration when offering a mortgage. However, many lenders offer programs for first-time homebuyers and for those who need down payment assistance.

Mortgage Brokers

When shopping for a mortgage, you may cross paths with a mortgage broker. Although not lenders themselves, they can play an important role in helping you find the best mortgage for you.

Mortgage brokers work as a liaison between borrowers and lenders and can help borrowers save time and money in navigating how to find the right lender,” Jones said. And according to Brady Bridges, owner of Reside Real Estate in Fort Worth, Texas, a mortgage broker can steer you away from a mortgage with onerous payment terms, and may be able to get you a special rate from their lenders.

Mortgage broker fees vary, but are often paid for by the borrower upon closing or lending. A mortgage broker may offer a “no-cost loan,” in which the lender pays their commission at closing. However, that amount is often integrated into the loan’s interest rate.

According to Melissa Cohn, regional vice president at William Raveis Mortgage in New York, banks and credit unions generally have the best rates but are more conservative with their lending guidelines. On the other hand, non-bank mortgage lenders and private lenders usually have higher rates, but are more aggressive with their lending. “The goal is to find the lender that will offer the lowest rate for the longest amount of time at your desired loan to value,” Cohn told The Balance by email.

How To Choose a Mortgage Lender

When shopping for the best mortgage lender, the primary determination should be based on your needs and specific financial situation. “When looking for a mortgage, a buyer should first determine how long they intend to be in their new home, where they see their income going over the next period of time, and what their credit score is,” Cohn said.

Use Loan-to-Value or Other Factors as Filters

Cohn recommended shopping based on the loan-to-value you wish to borrow. “If you need 90% financing, then you need to compare only those lenders that offer 90%.” If your credit score is below 700, you’ll need to compare lenders who will accept that score, Cohn said. “But never try to do an apple-to-oranges comparison—it never works, especially today.”

Remember That You Are ‘Shopping’

We use the terminology “shopping for a mortgage” because you should consider more than one mortgage lender. Andrina Valdes, COO of Cornerstone Home Lending in San Antonio, told The Balance by email that she recommends getting quotes from at least three different mortgage lenders.

Compare Fees 

Inquire about any fees you may be responsible for. “These fees may be charged for loan application, appraisal, credit report, document prep, inspection, notary services, processing, underwriting, and more,” Valdes said. According to Jones, loan origination fees are usually charged upfront. “While fees vary, borrowers should expect them to range from 0.5% to 1% of the loan total,” Jones said.

Check Reviews and Follow a Checklist of Questions

Valdes also advised reading customer reviews online, and she and Jones recommended asking the following types of questions of a mortgage lender or broker:

  • How long have you been in business?
  • Will this be a hard credit pull?
  • Is your processing/underwriting/funding be completed in-house or outsourced?
  • Can you explain your fees to me (origination, closing, etc.)?
  • What loan types are available?
  • Which loan program would you recommend to me and why?
  • How much can I borrow?
  • What is my down payment?
  • Are there prepayment penalties?
  • What perks/programs do you offer beyond a competitive mortgage rate?

While you can switch lenders before closing, once you close, you can only do so by refinancing your mortgage. Be advised that while you may receive a new rate, you will need to pay closing costs.

The Bottom Line

When shopping for the best mortgage lender, there are several factors you should keep in mind, including your credit score, how much you can afford to pay down, and the various fees included. The best mortgage lender for your needs will be able to offer terms that can fit your budget.

Frequently Asked Questions (FAQs)

How do you file a complaint against a mortgage lender?

If you’re having an issue with your mortgage lender, first try to resolve it directly through the lender’s customer support or complaint department. If a resolution can’t be achieved that way, you can submit a complaint to the department of financial services for your state, the Better Business Bureau, or the Consumer Financial Protection Bureau.

Who is the best mortgage lender for buyers with bad credit?

Even if you’ve made financial mistakes in the past and have bad credit, it is possible to get a mortgage, although you may need to make a bigger down payment or pay more in interest. There are even mortgage lenders that specialize in programs for those with less-than-stellar credit.

Which types of mortgage lenders have the lowest rates?

Generally speaking, banks and credit unions often offer the lowest rates; however, shopping around for mortgage lenders will give you an opportunity to compare rates to find the best one for you. You may want to also look for a lender that offers an express closing program, which can get you in a home in a few weeks.

What should you not say to a mortgage lender while shopping?

Refrain from saying anything that’s misleading or untrue while shopping for a mortgage lender. To be approved for a mortgage, everything must be verified. You run the risk of delaying the process if you misrepresent any facts about your financial situation along the way.