Are you preparing to buy a home?
Are you a cash buyer or you need to secure a mortgage? If you’re anything like the vast majority of prospective home buyers, you’re certainly going in for a mortgage. It’s easy to see why.
The median cost of a home in the United States is $250,000. With the vast majority of workers living paycheck to paycheck, who has this kind of money sitting in their account.
So, you’re ready to take out a mortgage. But how do you choose mortgage lenders considering there are thousands of them?
We’ve got your back. Continue reading to learn how to select a lender that suits your needs.
Know the Different Types of Mortgage Lenders
The first step to choosing the right mortgage lender is to have a good understanding of the different types of mortgage lenders.
First, there are direct lenders, which make up the vast majority of the mortgage lending market. These include traditional banks, credit unions, and other formal financial organizations. These lenders are usually the go-to because they offer the best rates.
Besides direct lenders, there are portfolio lenders, wholesale lenders, and hard money lenders. Consider these lenders when you’re unable to secure a mortgage from a direct lender, or when you want to buy an investment residential property.
In general, establish the pros and cons of each type of lender before you move forward with the application.
Know Your Financial Situation
There are different types of mortgage lenders, each catering to consumers with different needs. As such, it’s super important to know your mortgage needs.
For instance, how much money are you looking to borrow in the form of a mortgage? If you’re looking to borrow a million dollars, not every lender is going to consider your application. You have to choose a lender who has the capability to lend you such a huge stash of money.
What’s the state of your credit? If you’ve got bad or poor credit, getting a mortgage is going to be a challenging task, but not impossible. Direct lenders typically don’t make loans to individuals with credit histories that aren’t good, or fair at the very least.
When you know your needs and a good understanding of the various lenders, it’s easier to match your needs with a suitable lender. This prevents you from making applications to lenders who are bound to reject your application. This can hurt your credit, as lenders make hard inquiries on applicant’s credit scores.
Which Type of Mortgage Do You Want?
There are different types of mortgages: conventional mortgages, government-insured mortgages, adjustable-rate mortgages, fixed-rate mortgages, and jumbo mortgages.
Most mortgage lenders offer at least a couple of these mortgages, but it’s possible to find a lender who doesn’t offer a specific type of mortgage. For example, if you’re eyeing a government-insured mortgage, such as a VA loan, you’re not likely to find it offered by a hard-money lender. It’s direct lenders that are usually contracted by the government to offer government-backed loans.
As such, establish the kind of mortgage you want before starting to hunt for a mortgage lender. For example, if you’re positive that you meet the eligibility requirements for a VA loan, you’ll then set out to find a lender who offers VA loans.
Get the Help of a Mortgage Broker
Mortgage brokers are independent professionals who work in the mortgage industry. As their name suggests, their job is to connect mortgage borrowers to mortgage lenders.
Since they aren’t hired by any mortgage lender, you can trust an experienced mortgage broker to point you in the right direction. Whether you’re a first-time borrower or you want a reverse mortgage, this professional will assess your financial situation and give you a list of mortgage options that will suit you.
When hiring a mortgage broker, don’t settle for just anyone. Look at their professional experience and online reviews. Since you could end up paying them for their services, you want someone who will be worth your money.
Evaluate the Application Process
Mortgage lenders have different mortgage application requirements, which also means the application process varies. Some lenders are known to take their sweet time when reviewing mortgages and others are known to render decisions in a matter of a few days or weeks.
To know more about a lender’s application process, simply visit them or call in and ask. If you’re looking to get a mortgage rather quickly, you don’t want to deal with a lender who takes months to deliver a pre-approval or approval decision.
Similarly, you want to know a lender’s credit requirements. Most lenders typically have a specific score. For instance, if a lender wants a credit score no less than 630, you have to ensure your score meets this requirement. If it doesn’t, there’s no point wasting your time applying to that lender.
Compare Interest Rates
At the end of the day, you want to secure a mortgage with the lowest rate you can find. This is why it’s important to compare the interest rates offered by multiple lenders.
Bear in mind, though, that a low interest alone doesn’t necessarily mean a mortgage is the cheapest. You have to consider the term length as well. If your finances are a bit tight, for example, you might prefer a longer-term loan, even though its interest rate might not be the lowest.
Choose Mortgage Lenders the Right Way
Being a first-time home buyer, you’re certainly overwhelmed with the mortgage information you have on your hands. It’s no lie that you have to choose mortgage lenders who suit your needs. With this guide, you’re now in a better position to do so.
Be sure to explore our blog for more tips on homeownership.