Shopping for the perfect home can be an exciting time. You might spend countless hours seeking out the home of your dreams but left to wonder how to choose a mortgage lender.
As you start your search for the right mortgage lender, here’s what you’ll need to think about:
1. Look Beyond Advertised Interest Rates
When you’re taking out a mortgage, one of the most important factors that you should consider is interest rates. The interest rate, specifically APR, will have a dramatic impact on your loan’s total cost. With a higher APR, you could spend thousands of extra dollars servicing interest payments over the lifetime of the loan.
With the marked importance of this loan metric, many borrowers filter through lenders based on their advertised APR. Although considering the APR of a lender is important, you should look beyond the advertised interest rates when shopping for a loan.
Mortgage lenders are aware that borrowers want to secure the lowest APR possible. With that, many advertise APRs on their site that a borrower could qualify for in an ideal situation.
Since the APR on a loan will depend on a variety of assumptions that will vary based on your situation, it is likely that your loan offer will include a different interest rate. This is especially true if you have any marks on your credit report. With that, so you’ll need to do more research into what a particular lender would offer you before moving forward.
So how will a lender determine the APR of your loan offer? They will consider several factors, including:
- Loan amount: The size of the loan will play a role in the lender’s decision. The lender may advertise an APR based on a standard loan amount, such as $200,000. But you may need a loan with a larger rate. With a larger loan, the lender is taking on a larger risk. They may adjust their loan offer accordingly.
- Term: The loan term can have a big impact on interest rates. A lender may advertise rates based on a particular term. If you are considering a different term length, such as 30 years instead of 15, then you may run into a different interest rate.
- Loan-to-value ratio (LTV): The loan-to-value ratio of the deal can play a role in interest rates. You are able to lower your LTV if you can increase your down payment amount. Generally, lenders like to see an LTV of 80%. If you’re applying for a loan with a higher LTV, then you may see higher interest rates.
- Discount points: Discount points can have a major impact on your final interest rate. These points can lower your overall interest. But you may not choose to take the discount point route which will affect your final interest rate.
Here are three tips to keep in mind when comparing rates:
- Try to compare apples to apples. If you’re looking at a 30-year fixed, compare with other 30-year fixed rates.
- Make sure you’re looking at the annual percentage rate (APR), because this accounts for both the interest charged for the loan as well as any cost in setting it up. The bigger the difference between the base rate and the APR, the more fees the lender is charging.
- Remember that lenders may be using different hypothetical scenarios in their assumptions to come up with the rates.
Interest rates offer an important comparison point to use across potential lenders. However, you should look beyond the advertised rate to consider what the lender may be able to offer you based on your situation.
Of course, many of us start with the interest rate when shopping for a mortgage. But it definitely shouldn’t end there. Beyond this first step, you should consider a variety of other factors before moving forward with a particular lender.
2. Understand The Lender’s Communication Style
When you’re looking for a lender, it’s a good idea to consider their style of communication. With a mortgage application, and all business relationships, you want to be on the same page as your lender.
Lenders have a variety of communication tools available including phone calls, texts, emails, apps, in-person meetings and more. Think about the style of communication that you prefer. You might like receiving calls from a loan agent to walk you through the next step. Or you may simply want an email or text reminder when you need to contribute to the loan process.
You can avoid a lot of headaches by carefully considering what level and type of interactions you’d like to have with your lender. Otherwise, you might be stuck in a pattern of miscommunication for several weeks as the closing process unfolds.
3. Consider The Lender’s Client Services
Beyond the loan terms, you should consider the lender’s approach to borrowers. Some lenders offer helpful perks and handy features that other lenders don’t put in place.
You should start by considering the loan closing process. Ask questions about how the lender is able to help you through the application and closing process. Make sure that you’re comfortable with their level of involvement.
Fees are another component of the loan experience that varies dramatically based on the lender. You should look into the loan details to determine what servicing fees are charged, if any. Also, look into any other fees that could affect your bottom line. These might include a prepayment penalty for paying off the loan early, a charge for requesting mortgage documents, or a convenience charge for making payments online.
Look beyond the closing date and dig into the services offered. It’s especially important that you are comfortable with the mortgage payment options. For example, you may want to set up an auto payment for your mortgage. Make sure that a lender offers this before moving forward with a lender.
4. Read Lender Reviews
With the sheer amount of information available on the internet, it’s a good idea to read some reviews of potential lenders. When you read a review, you can get a better sense of what it might be like to work with a particular company.
Many of us look for reviews when making small purchases, why not look at reviews for this major purchase? Since this is such a big purchase, it makes sense to ensure that you feel comfortable working with the lender.
As you go through reviews, pay attention to the common themes. Are borrowers unhappy with the customer service of a particular lender? Are the rates not as competitive as initially advertised? Are customers happy with their experience after the closing is complete?
When you take these reviews into account, you’ll get a better sense of how the company treats their borrowers. If you like what you read, then you can solidify a choice. Or you might decide to cross a few lenders off your list.
5. Talk To The Lender Directly
Once you’ve narrowed your list of potential lenders, take a few minutes to discuss your loan options with the lender directly. When you make the call, you’ll have the opportunity to ask questions about the loan process. You can also gather a better understanding of what it would be like to work with the lender based on your first impression. If you get a bad feeling, then you can simply move on to the next potential lender.
You can kick off a phone conversation with any question you had in mind. But here are a few to consider:
- How long will the loan process take?
- What type of communication should I expect throughout the process?
- What kind of fees will my loan entail?
- Will my credit score allow me to work with this company?
As you are researching potential lenders, write down any questions you have along the way.
6. Compare Lenders Yourself
As you move toward this major purchase, take some time to comparison shop for yourself. The main points to consider include the APR, loan term and customer experience. You can choose from many types of lenders such as traditional banks, credit unions and specialized lenders.
Don’t rush through the process. Look at the details of a loan offer, think about your unique situation, and assess customer reviews. As you go deeper into the process, don’t be afraid to ask questions when you’re ready.
In the end, the best lender for you will depend on your unique situation. Take the time to determine which lender will be best suited to serve you as you embark on your journey to homeownership
If you are still unsure of the right choice for your situation, then consider connecting with a mortgage expert. They will be able to provide the answers you are looking for today!