Finding a mortgage lender can be confusing for a home buyer if you don’t understand the industry. Comparing mortgage lenders can reduce your loan costs. Use these key points of comparison to make an informed decision.
The Three Basic Types of Mortgage Lenders
> Mortgage Bankers = lowest fees, loans are funded in-house. Best for borrowers with high credit scores.
> Mortgage Brokers = higher fees, loans are shopped around to mortgage bankers; in other words, brokers are a “middle man” submitting your loan to multiple bankers for approval. Brokers make their money by adding fees to the costs charged by mortgage bankers. Borrowers with some credit problems or those purchasing unusual properties might choose this lender.Ã?Â¯Ã?Â¿Ã?Â½
> Sub prime Lenders = highest fees, mortgage brokers that specialize in finding loans for borrowers with the lowest credit scores. Buyers that do not qualify for a loan any place else might try a sub prime lender.
Ask questions about loan costs and credit score qualifications based on loan type; fees for conventional financing are different from FHA or VA loans. Find out the lender’s policy for locking in interest rates and points since they fluctuate daily.
If you don’t understand points, think of them in terms of interest. Paying one point equals 1% of your loan amount. So if your loan amount is $200,000 and the lender is charging you 2 points, you will pay $4,000 along with any other closing costs. Find out from the lender which fees must be paid upfront, and which fees can be added onto the loan amount. Once again, one lender may charge higher points or add-on fees than another, so comparing is important to your bottom line.
Get The Facts and Don’t Be Discouraged
A lender will determine how much home you can afford by considering the sales price, down payment, mortgage interest rate, terms, employment history, and your outstanding debt. Generally, most home buyers can qualify for a home priced three or four times their gross family income.
Don’t be discouraged if qualifying appears doubtful to you. It costs nothing to see a lender for pre-qualification, except maybe a credit report fee. There are many loan programs available, even if you are a first-time home buyer. Some programs allow the buyer to receive a gift for part of the down payment from a family member. If you have served in the military, you might qualify for a VA loan, which requires no down payment. Most lenders work hard at finding just the right loan for a borrower, so don’t be shy about having a candid discussion about your goals for home buying. Answer all questions honestly so the lender will have all the information necessary to help you.
Often, real estate agents have in-house lenders that they refer to buyers; while this is a convenient service, don’t feel pressured to apply with the in-house lender if you prefer going somewhere else for your loan. Choosing where to apply for a loan is always the borrower’s decision by law. In addition to your real estate agent, ask trusted friends and family for lender recommendations.Ã?Â¯Ã?Â¿Ã?Â½
Best Lending Practices
Once a lender is chosen for pre-qualification, borrower’s can use the checkpoints identified by the National Association of Mortgage Bankers “Best Lending Practices” to measure professionalism. The information can be accessed by clicking on the link below.
National Association of Morgage Bankers Best Lending Practices
Key points to remember when looking for the best mortgage lender are:Ã?Â¯Ã?Â¿Ã?Â½
Ã¢Â?Â¢ Understand which type of lender to choose based on your credit score, employment, down payment, and propertyÃ?Â¯Ã?Â¿Ã?Â½
Ã¢Â?Â¢ Ask questions about fees, points, lock-in policies, and special programs
Ã¢Â?Â¢ Deciding on a lender is the borrower’s choice so consider trusted recommendations, and professionalism
Now that you’ve increased your mortgage lending savvy, you are ready to compare and choose your lender with confidence!