A mortgage lender is typically a bank or other financial institution that issues mortgages, though it could also be an individual who “totes the note.” Traditionally, home buyers looked for a mortgage lender after they had found a house to buy, but today’s savvy home buyers begin working with a lender before looking at properties. It’s a good way to avoid my 10 First Time Home Buyer Mistakes!
Why find a mortgage lender BEFORE you find a home?
1. To establish a reasonable price range
Lenders will tell you exactly how much home you can afford under their guidelines and how much they’re willing to lend you based on your credit score (Get your free credit score at GoFreeCredit.com). Once you know how much home you can afford, you can shop for a house that won’t blow your budget.
2. To get preapproved
Nothing makes a seller more nervous than a contingency clause enclosed inside an offer to buy. Sellers almost always feel more comfortable when a buyer has been preapproved for a mortgage loan. Another advantage to the buyer … buyers who have been preapproved may have more leverage in negotiations with the seller. You’ll also stand out if several other buyers are bidding on the home you want because you can set an earlier closing date without having to wait on an approval process to run its course.
You can find a mortgage lender either using the Internet, on your own, or through a mortgage broker, a professional who specializes in finding lenders for prospective home buyers.
- On the Internet: The World Wide Web has been a boon for the mortgage industry. With potential home buyers able to communicate with lenders regardless of distance, rates are much more competitive. Some of the best lenders operate online and many of them almost exclusively. Long gone are the days when your choices were limited to the bank and the credit union. Options include companies like Lending Tree or Mortgage Search 123 who take your information and have banks “bid” on your business.
- On your own: Working directly with a lender is a perfectly fine option for more experienced home buyers. If you’ve been around the mortgage block a few times, going it alone will probably work out just fine. If you do pursue lenders on your own, just be sure to visit and compare at least a few prospective lenders. The mortgage business is relatively unregulated compared to other aspects of the financial industry, so if you encounter a lender that doesn’t feel right to you, move on. If you’re uneasy about choosing a lender on your own, either work with an online lender or use a mortgage broker.
- Through a mortgage broker: Working with a broker is often helpful for buyers with special circumstances, such as serious credit problems or the self employed. Not all brokers charge fees to borrowers — those who do typically charge a commission of 0.5–2% of the principal. Brokers who don’t charge fees receive a commission from the lender, which usually requires the lender to raise the loan’s rate slightly. If you work with a broker who charges a commission-based fee, refuse to pay more than 1%. To find a broker in your area, ask your real estate agent, or search online.
What to Look For in a Mortgage Lender
As you look for a lender, try to find one that offers the best combination of the following factors:
A stellar reputation
Work only with lenders with a great reputation and who demonstrate a sincere commitment to helping you through the process. If it feels like a lender just wants your money, move on. Another important point, how is the lender’s “follow-up?” Do they return your phone calls? Do they dodge your questions?
Low, low fees
Virtually all lenders charge an origination fee (generally 0.5–1% of the principal) to cover the expenses they incur to assess your credit score and process your loan. Lenders who charge no origination fees usually have higher interest rates.
Fantastic interest rates
Since YOUR interest rate will depend on your own personal situation (credit score, income, history, etc), don’t choose a lender based on its advertised rates. Why? The rate you receive will likely differ from those advertised rates. A better choice is to choose a lender with realistic rates that are also competitive with other lenders.
Flexibility and specialization
Lenders you consider should specialize in the specific type of loan you want and be willing to look at your personal financial situation under a variety of different loan options.
Choosing your mortgage lender is the first step toward home ownership
Make your choice wisely!