Choosing the right mortgage lender can be tricky. There are many factors to consider, including the interest rate, fees, and service. While many parts of the mortgage process are similar across all lenders, some differences can affect the fees and the service you receive.
Compare mortgage lenders to find the best one. Look at various options, such as your bank, a credit union, online lenders, and other alternatives.
Here’s what you should know about choosing a mortgage lender.
Improve Your Credit Score
Pull your credit report and score to check your finances before you start looking for a mortgage lender. If your credit score needs some improvement, check your credit reports for mistakes, late payments, and delinquent accounts in collections.
Lenders will scrutinize your DTI ratio to see if you can handle your existing debt and a new mortgage payment. Many lenders require a DTI ratio of less than 43 percent, though some loan programs allow up to 50 percent.
Set a Budget
A lender may qualify you for a loan that exceeds your budget and leaves no room for unanticipated expenses, but taking out such a loan may be a bad financial move.
Consider expenses such as monthly bills and other financial goals to understand better what you can afford. Calculate your mortgage payment based on your monthly net income.
Understand Your Mortgage Options
Understanding the various mortgage types is important for choosing the best mortgage lender. A common misconception was that borrowers needed a 20 percent down payment to purchase a home. Many lenders offer loans with as little as 3 percent down, and some government-insured loans have a 3.5 percent or no down payment requirement.
There are five types of mortgage loans:
– FHA and other government-backed loans
– Conventional loans
– Adjustable-rate mortgages
– Fixed-rate mortgages
– Jumbo loans
Examine Rates and Terms from Various Lenders
It’s not a good idea to settle for the first lender you speak with. Rate-shop with various lenders, including banks, credit unions, online lenders, and local independents, to ensure you get the best rates, fees, and terms. Find a lender who can communicate with you in the manner that suits you best, whether in person, via text, or online.
Obtain Mortgage Preapproval
The only way to obtain accurate loan pricing is to obtain mortgage preapprovals from three or four different lenders, as this allows lenders to examine your credit and financial situation thoroughly.
Remember: Getting a mortgage preapproval doesn’t guarantee your loan. At any point during the process, lenders can re-evaluate your assets, employment and income histories, and credit history.
Carefully Review the Fine Print on Your Loan Estimate
To prevent buyer’s remorse, carefully read your mortgage documents. Keep an eye out for the following:
– Interest rate
– Monthly payments
– Lender fees
– Closing costs
– Down payment
These factors shouldn’t change significantly if your credit and financial profile stay the same from pre-approval to closing.
Always seek clarification if you need to understand a fee or find paperwork errors. Getting ahead of problems early on can save you a lot of trouble later.
