How to Choose a Mortgage Lender
Whether you’ve been shopping for a new home for months or just getting started, at some point you’ll have to start the mortgage process. And that means finding the right mortgage lender. You have a lot of choices, and you shouldn’t base yours on the lowest interest rate alone. So here is a step-by-step guide to help make the selection of your mortgage lender as smooth as possible.
Get your financial house in order first. Before you start comparing mortgage lenders, stop and assess your financial status first. The better your credit score, the more flexibility you’ll have when it’s time to select a lender. Here are a few things you can do to get started:
· Order your credit report. Make sure you report any errors that may have a negative impact on your credit score.
· Take an inventory of your debts. Your credit report will be a good source to help ensure you don’t forget anything. List all of your outstanding loans, including car loans, credit cards and so on. Be sure to note account numbers and outstanding balances.
· Add up your assets. This includes cash you have in checking and savings, investment and retirement accounts and personal property.
Narrow your list of mortgage lenders. All lenders are not created equal. Low rates matter, but so does reputation. You can start by contacting financial institutions you already do business with, such as your current bank or credit union. If you’ve received good service in the past, that’s a sign your mortgage experience may go well. As a current customer, you might be offered some favorable treatment as well.
You can also ask friends, family members or colleagues for referrals to mortgage lenders with a history of providing good customer service. Which lenders are best at explaining options, choosing the right one and then keeping you informed at every step in the mortgage process? It can be complex, and good communication is key to a better customer experience.
Compare interest rates and terms. Once you have a few lenders in mind, it’s time to compare interest rates and loan terms. You’ll have a lot of options, and your lenders should explain the differences, understand your goals and then help you choose the best option for you. For example, many loan options offer a lower interest rate in exchange for paying more discount points (a “point” is equal to 1% of the loan amount). Be sure to ask questions, if you don’t clearly understand your options.
Compare the other costs of obtaining your loan. In addition to your interest rate, compare all of the loan costs among the lenders you’re considering. That comparison should include all points, fees for loan processing, appraisal, legal, closing and so on. You’ll find these costs in your “Good Faith Estimate,” which your lender should give you shortly after you apply.
An “apples-to-apples” method of comparing the total, annual cost of borrowing among the lenders you’re considering is via the “Annual Percentage Rate” or “APR.” This is your mortgage interest rate recalculated to include all of your other loan costs. If two lenders offer the exact same interest rate—but one lender’s APR is higher—it means that lender is charging you more to obtain the loan.
Choose the lender that’s the best fit for you. It’s a combination of the right interest rate, APR, loan terms and customer experience. When you’ve made your choice, be sure to lock in your interest rate and know what the expiration date of the rate lock is. Will you be able to close the loan in that timeframe? If there are any issues that arise during the mortgage process such as an appraisal that comes in lower than expected, what will the lender do to resolve the problem as quickly as possible?