How to find a mortgage lender that’s right for you

  • Decide whether you want to work directly with a lender or use a broker, then find a company that offers the type of mortgage you need.
  • By applying for pre-approval from multiple lenders, you can compare interest rates and loan amounts.
  • Loan estimates help you see the rates, closing costs, and monthly payments from different companies.
  • This article is part of “The Road to Home” series designed to help first-time homebuyers navigate the intimidating and exhilarating process of buying a home.

Choosing a mortgage lender is one of the most important decisions in the home buying process. The lender you choose determines how much you can borrow, your interest rate, and what fees you will need to pay. Here are tips for choosing a lender that matches your needs.

Choose a type of mortgage lender

There are many different types of lenders, and they differ from each other in essentials such as how they access funds for your loan. But as a consumer, you’ll likely be looking at two main types of lenders:

  • Direct lenders. You work one-on-one with a direct lender and the company provides your financing. A direct lender can be a bank, a credit union, or a loan company such as Better.com or Carrington.
  • Mortgage brokers. A mortgage broker is the intermediary between you and a lender. A broker helps you compare lenders and find the best deal, but you may need to pay them.

Choosing between the two can be tricky as some lenders only work with brokers and others don’t work with brokers at all. Brokers do a lot of the work for you, but you might prefer to work directly with lenders if you just want to compare a few of your best options.

Find a lender who offers the type of mortgage you need

Not all lenders offer every type of mortgage. For example, Lender A may only offer compliant and jumbo mortgages, but your credit score is too low to qualify for either. You will probably want to go with Lender B, which offers Federal Housing Administration mortgages to people with lower credit scores.

Most lenders have compliant and jumbo mortgages. Compliant mortgages are what you might think of as a “regular” loan, and jumbo mortgages are home loans for larger amounts. But if you need a specific type of loan, you can check out the Insider Lists of the Best Lenders for each type:

  • FHA Mortgages. Lenders whose mortgages are guaranteed by the Federal Housing Administration cater to borrowers with lower credit scores and lower down payments than those who focus on compliant mortgages.
  • VA mortgages. Lenders whose mortgages are guaranteed by the Department of Veterans Affairs work with serving military personnel and veterans to obtain loans with no down payment.
  • USDA Mortgages. Mortgage loans guaranteed by the United States Department of Agriculture are for low to moderate income borrowers who buy homes in rural areas, and most lenders do not require a down payment.

How to compare mortgage lenders every step of the way

Mortgage prequalification

Mortgage prequalification is one of the first steps in the home buying process. When you apply for prequalification, you provide a lender with your financial information, such as your credit score and income. Then the lender gives you an estimate of how much they can lend you, what types of mortgages you qualify for, and the interest rate you could pay.

The information you see when you’re prequalified isn’t set in stone, but applying to multiple lenders can help you compare basic details to narrow your search. For example, you may find that you qualify for a compliant mortgage with one lender but not the other because one of them requires a higher credit score.

Mortgage pre-approval

Mortgage pre-approval is similar to prequalification, but there are some important differences. You ask for pre-approval when you’re ready to start buying homes because a pre-approval letter locks in your interest rate for 60-90 days. By applying to multiple lenders, you can compare official mortgage rates.

Try to limit your requests to a period of 30 to 45 days. A lender performs a credit check when processing your pre-approval request. A bunch of serious questions on your report can hurt your credit score, unless it’s for the purpose of finding the best rate. If you limit your rate purchases to about a month, the credit bureaus will understand that you are looking for a home and should not hold back every individual investigation against you.

Mortgage loan estimate

Once you’ve chosen a home, you’ll apply for a mortgage and receive a loan estimate from a lender. The estimate shows all the costs of buying a home, including how much you can borrow, the interest rate, a detailed list of closing costs, and any additional costs like prepayment penalties. The last page includes numbers to easily compare your offer to offers from other lenders.

Between loan qualification, pre-approval, and estimate, the loan estimate is the most detailed and official of the three. Receiving this document from more than one lender will help you compare the smallest details. As with mortgage pre-approval, try to limit your requests to 30 to 45 days to minimize damage to your credit score.

Read each document carefully

Read your pre-approval letters and loan estimates carefully to make sure you understand what you would pay with each lender. If you don’t understand a term or a fee, don’t be afraid to ask the company.

Once you have chosen a lender, you will receive a closing disclosure at least three days before the closing. A final disclosure provides a detailed summary of your mortgage, and you should read the fine print to make sure there are no mistakes, compare it with your loan estimate, and ask all questions.

You may even decide to hire a lawyer to read your final statement, but be prepared to pay several hundred dollars.

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