Tips for Choosing a Mortgage Lender

Dated: 03/03/2020

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Tips for Choosing a Mortgage Lender

Choosing a mortgage lender is one of the most important steps in the home buying process. Unfortunately, 20% of home buyers regret who they choose as their mortgage lender. Consequently, it's important to do your research and shop around when looking for a mortgage lender. Follow these tips to make a wise choice.

Types of Lenders

There are three types of mortgage lenders — retail banks, credit unions, and mortgage banks — as well as mortgage brokers, who compare loan products via a coterie of potential lenders to help you, the client, find the right one.

Retail Banks

These are your Chases and Banks of America, plus your local banks. They do their own underwriting (in a nutshell, investigating your finances), so retail banks, especially the smaller ones, can sometimes offer lower fees and less-stringent credit requirements. If you like to have your accounts all in one place, you may want to use your own bank or credit union. Local banks are also less likely to sell your load to another party.

Credit Unions

They’re not-for-profit and customer-owned, so they’re not beholden to shareholders like a bank. Because of that and their not-for-profit tax status, they typically offer more personal service and lower fees. The flip side is less convenience: They have fewer branches and ATMs. 

To apply for a loan, you must be a member of the credit union’s community, which could be faith-, employment-, interest-, or union-based, among other things. That said, it’s typically not difficult to become a member of most credit unions.

Mortgage Banks

These banks only offer home loans. An online lender is going to offer less hand-holding than a local bank or credit union.

Mortgage Brokers

Mortgage brokers are essentially personal home loan shoppers — they act as liaisons between home buyers and mortgage lenders to help people find the lowest rates and the best mortgage terms. They’re able to get home buyers the best mortgage rates because they leverage their existing relationships with lenders — something individual home buyers can’t do. By doing the heavy lifting for the borrower, the idea is that they make loan shopping more convenient — and perhaps a bit faster. In exchange for their services, mortgage brokers typically charge a 1% to 2% fee of the loan amount, which is either paid by the borrower or the lender at closing.

It Pays to Shop Around

Over the life of the loan, seemingly subtle differences could add up to tens of thousands of dollars. Consequently, it pays to shop around. You will want to thoroughly research any lender you're considering. Interview 2 to 3 different lenders and don't be hesitant to seek advice from family, friends, co-workers and your real estate agent. Your real estate agent in particular should have experience with various lenders in your area.

Get Pre-Approval

Instead of just pre-qualification, seek out pre-approval from two to three lenders. With a pre-approval, a lender typically goes deeper and tells you more specifically how big a loan you can get. In addition, your pre-approval should come with a Loan Estimate. A Loan Estimate spells out a future loan’s terms, including:

  • The interest rate

  • The length of the loan

  • Estimated costs of taxes and insurance
  • How interest rates and payments might change over time
  • Other important financials

By comparing loan estimates, you can effectively size up your loan options and decide which lender is best for you — and your future.

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Linda Bondo

I have enjoyed a 30+ year career in real estate, participating in all aspects of the industry including residential, commercial, development, and investment properties. I am excited to have joined the....

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