How to Find and Choose the Best Mortgage Lender for You

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Jenny Johnson's picture
 How To Go About Finding The Right Mortgage Lender For Your Home or Real Estate Investment Property

How to Find and Choose the Best  Mortgage Lender for You

By Jenny Johnson

Think about finding a mortgage lender the same way you think about finding a home to buy: There may be thousands of different possibilities and you may have to do some legwork, but in the end there’s going to be one that’s exactly right for you.

Most consumers only deal with mortgage lenders a few times in their lives, so the amount of information to digest can feel overwhelming. Here’s a guide to understanding the language and choosing a direction.

Fixed or adjustable?

A mortgage loan is either fixed-rate, adjustablerate or a hybrid. Fixed-rate loans are exactly that – the interest rate you pay over the life of the loan remains fixed, and your mortgage payment never changes. Adjustable-rate mortgages typically adjust themselves to the financial landscape on an annual basis and rise or fall accordingly. And hybrid loans are fixed-rate for a number
of years before changing to an adjustable rate.  How long are you planning to stay in the home? If the answer is under 5 years, an adjustable loan may be right for you, because the payments are
typically lower in the first years.  If you plan to make this your forever home, the fixed-rate loan is more predictable and may be the better choice for you.

Conventional vs. government-insured?

Conventional loans are private loans, and include those you would get from a bank, a credit union, a mortgage lender or an internet lender. Governmentinsured loans are guaranteed by the federal government, which includes Federal Housing Administration (FHA) and Veterans Administration (VA) loans. FHA loans can be attractive because both your credit score and the down payments can be lower; conventional loans can be attractive because with a highenough down payment, you can avoid mortgage insurance altogether. This and a lower interest rate will make your monthly payments lower.

Direct lender or mortgage broker?

You can deal one-on-one with a single mortgage lender, such as a bank, credit union or a private company; they are called direct lenders because you are working with them face to face. If you are approaching several direct lenders, you must apply to each one individually. Or you can use a mortgage broker, a person who acts as a liaison between you and several possible lenders. In the case of the direct lender, you will have to do more research ahead of time to select the company. In the case of the mortgage broker, he or she does some of that work for you, getting quotes from a variety of different lenders.

Interest rates and loan fees should be approximately the same with both approaches, though you may get a break if you have other accounts with your direct lender. Mortgage brokers charge
more because they are acting as an intermediary, but that may be worth it for the comparison work they do.

Either way, it is definitely to your benefit to get several quotes. A 2012 Stanford University study that researched FHA loans made in a six-week period showed that buyers who shopped for mortgages of $100,000 or $200,000 principal lost at least $1,000 and as much as $2,600 if they gathered only two quotes rather than four.


Gathering information

With so many choices, where does a person start? The same place you start when you are seeking a professional in any business: word of mouth. Do you have friends or relatives who have recently purchased homes? Ask about their lenders and their experiences. Your accountant, financial adviser or real estate agent can be another source of referrals. Spend some time on the internet looking through different deals from different lenders, just to familiarize yourself with the playing field. If you contact various lenders, remember that each of them wants to “sell” you their business, so you need to ask questions and compare the answers just as you would in any other large purchase. Take good notes and ask the lenders to email or fax you Good Faith Estimates (GFE) and Truth-In-Lending (TIL) statements.

When you have several candidates, interview them just as you would if they were applying for a job – because they are. They will be able to take your financial information and help you understand how much of a mortgage you can qualify for. Be sure you understand the following from each lender or broker:

• What is the best interest rate can I get with your loan products, and when can I lock that rate in?
• Am I eligible for any special programs? (Veterans or first-time home-buyers, for instance.)
• How much down payment is required to get your best rate?
• What will my monthly payments be with those terms?
• What fees will I have to pay? (These are commonly called “points,” which you pay at closing. For every “point” that you pay, the lender will decrease your interest rate by 1 percent.)
• Are there prepayment penalties? You don’t want to be caught paying a penalty fee if you send in an extra mortgage payment once or twice a year.
• Will I need mortgage insurance, and how much will that add to my payment?

This information will give you a great basis on which to choose a lender. And you can check license information for the financial services provider you are considering at NLMS Consumer Access, which will also tell you how long the loan officer has been in business and whether he or she has been the subject of any selfreportedstate disciplinary proceedings.

FREE DOWNLOAD: The Definitive Guide To Real Estate In Portland, OR by Jenny Johnson

Jenny Johnson is Senior Real Estate Broker at Eleete Real Estate in Portland, Or.  She has been a top producer representing buyers and sellers or homes and investment properties for over 14 years.


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