How to Choose a Mortgage Lender for Your Situation?

House placed on coins. notebook and pen Prepare planning savings money of coins.

Regardless of whether you’re a first-time homebuyer or looking to purchase your third house, the mortgage lender you choose is important. There are many homebuyer grants and programs available today. However, the selection process can be daunting if you’re not sure what criteria to use or how the process should work. Fortunately, the process isn’t that difficult if you know what to do and what to look for. Developing a fundamental understanding of what a mortgage is and how to go about securing one that’s best suited for you isn’t impossible. It’s part of the selection process you should use to choose a mortgage lender.

Take All the Information and Choose the Right Mortgage Lender

A mortgage loan is very similar to a car loan. Instead of having to buy a car outright, you can pay for your car a little at a time by getting a car loan. Add a little or a lot of interest to the purchase price and you have a car loan. A mortgage works similarly. Most of us don’t have the money to buy a car or a home upfront. This is why most of us finance our cars and our homes. Lenders, in turn, have the option of repossessing our car or home if we miss too many payments. The financed item operates as collateral. However, one key difference between a mortgage and a car loan is perhaps the fact that the interest on a home can have varying terms.

Typically, there are two forms of interest rates common to a mortgage. A fixed mortgage rate and an adjustable-rate are common interest terms for mortgages. However, you should also consider the interest in addition to the annual percentage rate as one determinant in terms of which lender may be best for you. However, there are several factors that should be considered to choose a mortgage lender.

What Should I Consider Before Shopping for a Mortgage?

Buying a home is not for the faint of heart. Be careful and try to avoid mistakes in the process of homebuying. There are many personal and financial factors you should strongly consider before deciding to buy a home. However, several big variables can make you a good candidate for buying a home. If your credit score is fairly strong, you have money saved, you’re good at managing debt, you have a down payment and closing costs, and you’re ready to settle down, you may be a good candidate for buying a home. All of these factors will be beneficial when shopping for a mortgage lender.

For example, a strong credit score, a down payment, and closing costs may make you a good candidate for a mortgage lender. The better your credit score is, the better your interest rates will be. Plus, having money down and closing costs will also make it easier to manage a home loan.

Credit Factors

However, there are other factors that you should strongly consider. At the very least, you need a credit score of at least 580 to buy a home. For many conventional lenders that score jumps forty points and should be no less than 620. However, every lender will have their criteria. IN particular, an FHA mortgage lender requires a minimum credit score of 580. With this being said, your first stop in the mortgage lender search process should be your credit. You need to know where you stand and possibly make some proactive moves if your credit is a little short.

Take a Close Look at Your Credit…

You need to know your credit score. Checking only one credit report won’t get the job done, however. You need all three credit scores. A mortgage lender will usually take the median of all three credit reports. One of the main reasons why you should do this is knowing your score will allow you to get an idea of what terms mortgage lenders would offer. Of course, if your credit is extremely poor, you may need to forego buying a home until you clean up your credit. However, if your credit isn’t too shabby, there may be a few things that you can do to boost your score in a hurry if you need to. Websites like MyFICO.com can provide you with all three of your credit scores, however, there are others as well.

Boosting Your Credit Before You Start Looking for Lenders…

As stated above, if your credit is in really poor shape and your credit score is far below 580, more than likely, there won’t be too many quick ways to make your credit shine in a pinch. However, if you need to add a little sparkle or slight boost to your credit you can consider using one technique. You can reduce your credit utilization which is another way of saying paying down or reducing the amount of credit you are using. Lenders look at credit utilization as part of their approval process. Plus, it accounts for thirty percent of your credit score. If you’re carrying high balances on some of your credit cards, consider paying down some of your debt to improve your credit utilization. It will help.

In other words, increase your available credit to give your creditworthiness a boost in a pinch. Of course, payment history is the most significant factor when it comes to your credit score, but credit utilization follows closely behind.

Consider Your Debt to Income Ratio

Mortgage lenders will also pay attention to your debt to income ratio. In plain language, this is how much debt you have compared to the amount of money you make. Lenders will consider this factor when it comes time to determine if you can afford a home loan. It’s also a good idea to have money set aside to fund paying for your home because you will need to consider paying for more than just your down payment. Repairs and other essentials will need to come from this fund. All of these factors, in addition to the above-listed factors, will require consideration.

Use the Mortgage Pre-approval Process

Once you’ve got a strong handle on your credit, as well as any other areas of concern, it’s a good idea to utilize the pre-approval process. Many home buyers fear this process because they feel it will hurt their credit. However, your FICO score makes allowance for mortgage rate and car loan shopping as well as it’s dome within two weeks. All of these inquiries will only count as a single inquiry. You can use this time to shop around by filling out a full application with a few lenders, without a particular house in mind. This will give you an idea of the type of interest rates you could be approved for.

Once You Start Fishing, Consider These Things…

Interest vs. APR

Most people don’t understand the differences between interest and APR when they start shopping for a house. Interest is the fee you’ll pay for borrowing money. For example, if you take out a $1000 personal loan at four percent, you’re paying forty dollars to borrow the money. The annual percentage rate is a horse of a different color when it comes to a mortgage lender, and far more important than simple interest. The annual percentage rate is the complete cost of borrowing money from a mortgage company. This includes interest, the finance charge, the mortgage orientation fee, in addition to any other fees. This number is far more significant than simple interest and should be a focus.

You can be interested in two different mortgage lenders with the same interest rate. However, the APR can be significantly different. This difference can have a huge impact on the total price you end up paying for a home. Don’t be fooled by simple interest, let the lender’s APR act as a guide. You can help yourself in this area by using your credit score and national average mortgage rates to get an idea of the average APR you can expect to get. This should be part of the pre-shopping mortgage process.

However, there are quite a few tools that you can use to help you in the mortgage shopping process. You will also need to consider the different types of interest that you will need to decide on and pay attention to. FOr example, you will need to determine if you have an interest in a fixed interest rate or an adjustable interest rate. What you choose should be based on your preferences as well as your finances. The process you use to choose a mortgage lender should encompass several different factors.

What Type of Interest Rate is Best for Me?

This is a very personal question that should be based on your preferences as well as your financial situation. However, there are pros and cons to both. If you are on a fixed income, you may be better off seeking a mortgage with a fixed interest rate. Your payments will never change. Although the amount of money that goes to the interest and the principle will change over time, your payments will remain the same. A mortgage with a fixed interest rate is considered a traditional mortgage and is part of what some people look for in order to choose a mortgage lender.

However, you may be interested in a mortgage with an adjustable-rate if you are interested in capitalizing on the best interest rates possible. The rates will change according to the federal reserve. However, this means that sometimes the interest rates will be lower. Although this is a benefit, the rates can also be higher at other times as well. With a fixed interest rate, you will pay the same amount of interest even when federal reserve rates or lower. This may not be a benefit but you will pay the same rate, which may be lower when the interest rates rise as well. In essence, there are pros and cons to both.

The majority of your loan will be the amount you borrowed plus the interest. However, there are other fees as well. You will also be responsible for paying for insurance and taxes. Many different factors should be considered to Choose a Mortgage Lender.

Fixed Mortgage Rate?

This is simple. A fixed mortgage interest rate is one in which the interest stays the same over the entire life of the loan. For example, if you have a thirty-year mortgage with a fixed interest rate of five percent, all of your payments will be broken up into equal amounts based on an interest rate that will not change. In the beginning, most of the mortgage payments will go towards interest. However, as time passes, the payments will be applied to the principle, the original loan amount, more and more as time passes and the borrowed amount decreases. This payment process is called amortization. When you choose a mortgage lender, the amortization process should be considered as well. This is part of determining how much you will pay for your home over time.

Adjustable Mortgage Rate?

Conversely, an adjustable mortgage rate changes over time. This type of interest rate changes in conjunction with market rates. Several factors can affect these rates. However, it’s simplest to say that an adjustable interest rate is determined or set by the Federal Reserve. The interest rate on your home loan should be part of the selection process to choose a mortgage lender.

Insurance…

You may ask why you need insurance and the answer is simple. Mortgage companies usually require homeowners to carry enough insurance to cover the cost of the house in the event of a fire, flood, meteor shower, as well as other natural disasters or mishaps. Because your home is collateral for your home loan, insurance is a necessity to cover any loss or damage to the bank’s investment. Also, changing insurance rates can affect your mortgage payment. If your insurance rate goes up, your mortgage payments will reflect this and you’ll be paying more. Your payments, inclusive of all your fees, are also part of the selection process to choose a mortgage lender.

How Do Taxes Affect My Mortgage Payment?

Property taxes are built into your mortgage payment. Mortgage companies project your yearly property taxes and break them down into twelve equal payments that can be paid monthly. This ensures that your property taxes will get paid and neither you nor the mortgage company stands to lose your home. Unpaid property taxes can result in the loss of your home to the government as well as the loss of the mortgage companies’ investment. Including property taxes in your monthly mortgage payments is a safety net to ensure that those property taxes get paid. This is common with many mortgage lenders and should be part of the selection process consideration to choose a mortgage lender.

The Human Element Could be Deciding

There’s nothing worse than choosing a lender that leaves you on hold for long periods or doesn’t return your calls. You need to choose a lender that will be responsive. This is important just as APR, interest, and all those other factors are. The human element is real and can be quite frustrating if there is a lack in this department. If you find two lenders that you are equally interested in, yet one has a more responsive customer service, choose the one that has the stronger human element. Paperwork isn’t automated and there is a human element that you will be dealing with as you shop for a mortgage lender.

In the end, if you don’t have much time and all that paperwork and procedures makes you nervous, maybe you should take a mortgage broker. This person will find the best loan for you and gather all the necessary documentation.

Some Little Things On Which You Should Pay Attention

Also, don’t ignore your experiences with different lenders during the shopping process. Are they too busy to answer questions? Do they return calls? These should all be factors int the company you choose to go with. you may even have a home loan but be interested in shopping for reverse mortgage lenders. You will still need to follow certain steps to determine the best lender for you and your unique situation. Either way, it’s extremely beneficial to know how to shop for a mortgage. Choose a mortgage lender based on the right criteria.

All the pieces that comprise the mortgage lender shopping process can be overwhelming. However, the considerations don’t stop there. You will need to do more than just complete pre-approval applications. You will also need to read reviews and find out what other people have said about different lenders. Even customer service should be a factor when you’re considering who to get a home loan form.

When you finished reading the text above, you learn something more about mortgages and how to choose the right lender for your financial situation. Here on Loanry, right below, you can enter your information and you may find out if you qualify for any of the suggested, trustworthy lenders:


Conclusion

Shopping for a home loan can be a scary process, particularly if you’re a first-time homebuyer and don’t know what to expect. The process can be confusing. However, it helps to know what to focus on when it comes to your situation, as well as what to look for in a mortgage lender. Even if you’re buying your tenth house, there are certain factors that you may or may not be aware of, that you’ll need to pay attention to.

Before you ever fill out an application, you need to know what condition your credit is in. You don’t need to be surprised to find that your home loan application has been rejected because your credit score is 480. You must first develop clarity on your credit situation. Know all three of your credit scores. This will help you gain an idea of what interest rates you can expect from different lenders. Besides, studying your credit will also allow you to make a few tweaks if need be or may expose the fact that you’re not ready to purchase a home quite yet. Either way, knowledge of your credit situation is an absolute necessity when shopping for a home loan.

Everything flows from this beginning process and puts you in the driver’s seat to begin collecting information and narrowing down your choices. However, if you use the right approach and criteria that take into consideration your personal situation, it’s not hard to choose a mortgage lender.