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Choosing a Mortgage Lender

House for sale in Prosper, TX

Buying a new home is a massive investment, and most of us need a mortgage to make it happen. But not all mortgages are created equal; different mortgage lenders offer different things.

Choosing a mortgage lender that you’re comfortable with is just as crucial as finding one that offers a competitive interest rate. If you’re not sure how to find the best mortgage lender for you, the information below will help guide you through the process.

Types of Mortgage Lenders

There are several different types of companies that offer home loans. So, finding a mortgage lender that works for you and your financial situation starts with choosing the right kind.

Retail/Conventional Banks

Retail or conventional banks, like Wells Fargo or Chase Bank, offer mortgages directly to consumers. They also provide other products like savings accounts, personal loans, and auto loans.

They tend to have the most stringent underwriting terms, but many choose them because they already have a relationship with the bank through a savings or checking account. Retail banks also tend to offer a loan process handled in-person rather than online, which makes many mortgage seekers more comfortable.

Credit Unions

Credit unions are like retail banks in that they offer a variety of products and services. However, you must be a member of the credit union to use them.

Joining a credit union usually requires you to share a “common bond” with its other members. This bond could be as simple as living in the same geographical area, or it could be more specific, such as being a military veteran.

Many choose credit unions because they offer member-only deals and provide the same hands-on, personalized service you’d receive at a traditional bank.

Mortgage Brokers

A mortgage broker doesn’t underwrite your mortgage, but they can help you find a lender that will at the best available rate. These 3rd-party intermediaries collect your mortgage application and any other supporting documents; then, they shop mortgage lenders on your behalf.

If you use a mortgage broker, you should ask how many lenders they shop before presenting you with quotes; be sure to get a list of their fees and when they collect them, as well.

Non-Bank Mortgage Lenders (AKA Online Lenders)

Thanks to the internet, non-bank mortgage lenders like Quicken Loans and Loan Depot are growing in popularity. They’re fast and easy to use. Plus, they’re more likely to work with you if you have credit issues.

However, they intimidate many customers who want more personalized service. When the process is entirely online, you may have to dig to find answers to your questions.

What to Look for in a Mortgage Lender

Whether you want to use a broker, a traditional bank, or an online lender, there are several factors to consider when choosing a home loan lender. Remember, if the loan originator is also your loan servicer, you could be in a relationship with them for several decades.

Even if the originator and servicer aren’t the same, it’s vital to consider more than the interest rate, though that’s important too. Below, we outline a few simple steps for choosing a mortgage lender.

How to Choose a Mortgage Lender

When choosing a mortgage lender, be prepared to do some research. Compare interest rates for common loan types, including fixed-rate loans, adjustable loans, and hybrid-adjustable options.

Your interest rate will be determined by several factors, including your credit score and the terms of the loan. You can use an online mortgage calculator to get an idea of what your payment might be. You can change factors such as the loan amount, interest rate, down payment, and term and see how the various combinations affect your monthly obligation.

Be sure you ask each home loan lender about down payment requirements. Many institutions require 20% down, and if you can’t afford that, you will be required to purchase mortgage insurance. If that’s you, it’s essential to factor this cost into your monthly payment budget or look for a more flexible lending option.

Finally, consider the loan terms you’re looking for. Short-term loans have high payments but lower interest rates. Long-term loans allow for more affordable payments but have somewhat higher interest rates.

Questions to Ask Potential Lenders

Once you narrow down your home loan lender search to a few top candidates, ask them the following questions.

  • Who is my main contact person, and how do I reach them?

Your contact person may change once your loan reaches the underwriting process, so knowing the answer to this will be helpful after you submit your application.

  • How much of the process is online vs. in-person?

If a lot of the process is online, there may be fewer fees, but it’s also harder to ask questions or negotiate terms.

  • What fees am I responsible for?

Ask about origination fees, commission, appraisal fees, and credit report fees. Also, ask about discount points, which are up-front fees that can lower the interest rate of your loan.

  • What’s the length of the closing process, and is it possible to expedite it?

Asking about the closing process and whether you can use pre-approval to expedite it will help you know what to expect after finding the house you love.

  • How long of an interest rate lock do you recommend? If closing doesn’t take place in that time frame, what’s the cost of an extension?

Interest rate locks are usually put into place by the lender to hold the interest rate while you’re in the closing process. That way, your interest rate doesn’t increase between accepting the loan and closing on a home.

Many mortgage lenders add extension fees if the closing process isn’t complete in a specified time. Sometimes these fees are high, so ensuring you have a cushion on your interest rate lock time is crucial.

Final Thoughts

Choosing a mortgage lender is a significant decision on your homebuying journey. Everyone wants a competitive interest rate and low closing costs, but other criteria such as time to close and comfort with your lender are also important. Finding a home lender is really about balancing all of these factors until you reach the sweet spot that is just right for your needs.

If you’re ready to buy a home in North Texas, take a look at Lilyana by Hillwood. Our beautiful, master-planned community in Celina, TX has new construction homes and is located within the acclaimed Prosper ISD. Lilyana has an array of fabulous amenities for homeowners to enjoy including a resort-style pool with an outdoor pavilion and kitchen, a catch-and-release fishing pond, and miles of walking trails. See our community for yourself, either in person or with a virtual tour. We’re happy to walk you through the homebuying process, so you can find the home you’ve been dreaming of.