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How To Find The Best Mortgage Lender For Your Needs?

Finding a reliable and professional mortgage lender may seem quite easy but in reality, it is not - It can be challenging task and sometimes very frustrated .However, there are a couple of ways to check those things before you sign a contract. Here we've collected 4 most important tips to find a mortgage lender.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Mann (Silvermann) is an experienced investor, financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Financial Expert, The Smart Investor CEO

Experience

Baruch Mann (Silvermann) is a financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.
Author: Baruch Mann (Silvermann)
Baruch Mann (Silvermann)

Writer, Contributor

Experience

Baruch Mann (Silvermann) is an experienced investor, financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

Review & Fact Check: Baruch Mann (Silvermann)

Baruch Mann (Silvermann)

Financial Expert, The Smart Investor CEO

Experience

Baruch Mann (Silvermann) is a financial expert and founder of The Smart Investor. Above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.

We earn a commission from our partner links on this page. It doesn't affect the integrity of our unbiased, independent editorial staff. Transparency is a core value for us, read our advertiser disclosure and how we make money.

Table Of Content

Based on Bankrate’s ranking of the top ten largest Mortgage lenders by dollar volume in 2020, Quicken loans takes the lead with a whopping $313 billion, which nearly doubles United Shore Financial Service’s value of loans i.e. $182.2 billion. At the bottom up, US Bank had 58.61 billion in loan value. In the list, Wells Fargo recorded $137.15 billion, JPMorgan Chase 108.01 billion, Bank of America 77.67 billion, etc.  Chart: Leading Mortgage Lenders in the U.S. 2020, by Value of Loans (in Billion USD)

How Does the Mortgage Loan Process Work?

The mortgage loan process comprises of six distinct phases: pre-approval, house shopping; mortgage application; loan processing; underwriting, and closing. In the pre-approval stage, the lender ascertains if the buyer is ready and able to buy a house. To do this, the lender pulls your credit report and history.

If the lender is satisfied, you are approved for a loan. This takes you to the next stage which is house shopping. This could be time-consuming because buyers have certain specifics they want in a house as tastes differ.

After house shopping, then the stage is set to apply for a mortgage. You would be expected to provide information such as employment status, current employer, assets, and existing debts. After turning in your application with the necessary documents, your loan is not processed by the lender. At this stage, all necessary documentation about the borrower and property is gathered and reviewed. A file is created for the borrower with the mortgage package and sent to an underwriter.

The underwriter is the one who makes the final decision on the loan after a thorough evaluation of the buyer’s documents and mortgage package. Underwriters cross-check to see if the borrower and property match the eligibility requirements of the loan product for which the borrower applied.

If the mortgage package is approved, this ushers in the final stage in the mortgage process – closing. This is where all paperwork is signed and keys handed over to the buyer.

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How Much You Can Afford?

The general rule is that you can afford a mortgage that is up to two or two and a half times your gross income.

You'll want to pay attention to your current income so you can get a better idea of what your maximum will most likely be. But keep in mind that this isn't a given. Other factors are at work.

Another way to look at things is to look at current interest rates as well as underwriting rules. After that, consider your down payment, income, debt, and, of course, your credit score. All of these factors will influence how much money you can borrow from a lender.

House prices can fluctuate over time, which can make planning a home purchase a challenge. However, there is data that shows the most common price brackets of property purchases. In this chart showing 2020 NAR Trends data, you can see that the most common price bracket for home purchases is $200,000 to $250,000 at 15%. However, this is closely followed by the over $500,000 bracket at 13%. The least common price bracket is the $75,000 to $100,000 at 3% of property sales.

Price of Home Purchased

Keep in mind that, while online mortgage calculators can be useful, they are not without limitations. Just because you can plug in your income, expenses, and credit score and get a fixed amount doesn't mean you'll find a lender willing to lend you that amount.

Of course, you should be aware of your own requirements. They will be as follows:
  • Your financial situation
  • Who is going to accept your credit score?

First and foremost, you must ensure that your mortgage is not unmanageable—that it is within your budget. Consider the utilities and other costs that will be associated with it.

Then, which banks or credit unions will look at your credit score?  If your credit score is low, you will not have as many options as someone with a high credit score. Those with higher credit scores, on the other hand, will be able to shop around a lot more and get a lower interest rate.

1. Understand The Mortgage Lending Market

The first option in finding the best mortgage lender is to get a clear view of what your mortgage market looks like. Consider your options. Make sure you understand how it works and know how to calculate your mortgage payments, or at least understand the calculation. Determine who stays and who leaves in your mortgage field. Knowing the lending landscape helps a lot. 

You will have to choose your lenders from:

  • Credit Unions – They are member-owned financial institutions. They offer favorable interest rates to the shareholders. Basically, they are much similar to banks in terms of the services offered. However, they have limited financial products to offer. For loans, one can easily qualify for since their loan originations are lower.
  • Correspondent Lenders – They are usually local mortgage companies. They have the resource that you need to make you a loan. However, their operations rely on a pipeline of other lenders. These include the Wells Fargo and the Chase.
  • Mortgage Bankers – This is financial institutions offering mortgage loans to borrowers. Mortgage Bankers work for a specific financial institution and usually package loans for consideration. This is usually done by the bank loan underwriters.
  • Mortgage Brokers – These are not lenders. To be more specific, they are intermediaries between buyers and sellers. Brokers are usually important in helping you access a variety of services and quotes. A good mortgage broker can help their clients save a lot of cash at any given instance.
  • Mutual Savings Banks – This is another type of financial institutions. They are more like savings and loans. They are usually locally focused and competitive too.

This is your mortgage training field. You should get a hint of who to go for and who to leave. This will very much depend on the rates offered among other factors.

Pre-Approval vs Pre-Qualification

There is a difference between prequalification and preapproval, as the terms are often used interchangeably. You should decide which is best for you. The answer will vary depending on how serious you are about purchasing a home at the time you apply.

  • Preapproval – During a preapproval, your lender verifies your income, assets, and credit information by requesting official documents such as W-2s, bank statements, and tax returns. This allows your lender to provide you with an exact home loan amount.
  • Prequalification – During a prequalification, a lender will ask you questions about your income, credit score, and assets in order to estimate how much money you can borrow. They do not, however, verify any of this information, so if you provide false information, the number you receive during prequalification can easily change.

Prequalification and preapproval may take different amounts of time depending on their roles in the homebuying process. Bank of America prequalifying is a simple online process that can produce results in as little as an hour. You will need to provide additional information for mortgage preapproval, which will lengthen the process. You should receive your preapproval letter within 10 business days of submitting all of the required information.

Mortgage debt accounts for the majority of consumer debt. This 2020 NAR Trends chart highlights that the average mortgage loan debt has steadily increased between 2015 and 2019. The total four year increase in this segment is a significant 10%. This suggests a trend of increasing mortgage debt that correlates with the rising house prices.

Average Mortgage Loan Debt

2. Search For The Best Mortgage Rates

After you have done your homework on the players in your field. The second stage sets in. deciding on the lender that you want. This is where the road gets a little stiff. Patience will have to play a major role. Well, as noted above, you’ve seen there are so many kinds of mortgage lenders. Therefore, you have more options to chose from.

The initial stage is to search for the best mortgage rates. This could be done online, which for most is the best solution. Still, you can choose to work with a broker. There are many benefits that you may get by working with a broker. Time is a factor. Brokers will help you save a lot of time by taking up the larger portion of the work.

Keep in mind: The rate quote that you will see online, it is your starting point! This is where it gets more interesting… brokers will pull off your credit information and process a loan application for you. Thus saving you a considerable amount of time.

How to Compare Mortgage Loan Offers?

When shopping around for a mortgage, it’s important to compare mortgage rates. Here are metrics that you can use to compare different mortgage rates.

  • Application fee: This is the fee that you pay when submitting a mortgage application. It is a one-time, non-refundable fee. Comparing application fees can save you hundreds of dollars as some lenders do not require paying an application fee to sign up with them.
  • Credit report fee: This is the fee you pay your lender to access your credit report from credit reporting agencies. Prospective homeowners are entitled to one free credit report annually, while subsequent reports would be charged. Borrowers should expect to pay between $10 to $100 per credit report. Comparing credit report fees between lenders can save you some money especially if they have to be accessed multiple times.
  • Appraisal fee: This is the fee you pay to an appraiser who assesses the value of the property you intend to buy. Appraisal fees can be pretty expensive, so getting a good price by comparing quotes is highly recommended.
  • Underwriting fee: This is the fee charged by a mortgage lender for preparing the loan and associated paperwork. This is usually a percentage of the approved loan and is paid at closing.
  • Property taxes: These are taxes you pay on the property at closing. There is no standard figure as the amount of taxes you pay depends on the type of property and the area. However, buyers are expected to prepay two months’ worth of county and city property taxes at closing. Because they are usually paid in advance, the buyer may need to reimburse the seller at closing.
  • Junk fees: Landers sometimes infuse charges that are not necessary for your mortgage. These are called “Junk” or “garbage” fees. When comparing mortgages, look out for any excessive which may seem out of place, such as a mortgage rate lock fee. Ultimately it is best to avoid a lender that includes junk fees.

Negotiate Your Conditions (Especially If You have Good Credit)

After receiving several bids, you may decide that one lender is preferable to another. If the lender you prefer does not offer the lowest rate, you can negotiate a lower rate.

Inquire with the lender to see if the rate they provided can be improved. You can even inform them that you have received a lower rate from another bank and ask if they can match or beat it. Some lenders may be willing to lower their rates in order to win your business — or keep it if you cooperate with your current lender.

3. Research the Lender’s Reputation

Reputation! Reputation! Reputation! It doesn't matter what is being said about a lender. It is fine to go buy what others say about a lender. But the prime decision is upon you. A background check on the lender's reputation is very important. Get a record of the lender's performance as well as their performance from past clients. Make sure to speak with them. Check for the online reviews about the lenders. The best thing with researching the potential lender is that it would save you headaches in the future.

This is a daunting process and along the way, you may feel discouraged. There are so many lenders available and especially if you are tempted to check up online.

Researching the lender's reputation is one of the best things you could do. Not every lender is reputable. There are some signs that you need to be focused on when considering a potential lender. First of all, is the lender concerned about your financial situation? Does the lender keep in contact with you? All these are some of the questions you need to be asking yourself when considering a lender.

Loan size for a lender is a particulate factor that is so important. Therefore, if the lender is concerned about this, then he can be a perfect candidate. Creditworthiness, your down payment are some of the important considerations lenders make. If your candidate doesn't keep this in mind, then you should walk away.

Make use of JD Power, Trustpilot, and BBB Ratings

Before you accept an offer, look into the lender's Trustpilot and BBB ratings. These resources can provide you with a wealth of information about whether or not a company is reliable and worth your time.

We recommend that you search the Better Business Bureau's website for mortgage lenders. You'll be able to see how each company compares to the competition and if they're BBB accredited; never accept an offer from a lender who isn't.

Furthermore, Trustpilot is the place to go to find out what other people think. You'll learn how pleased customers are with the company's services and whether they would recommend it to others. If you notice an unusually high level of negative feedback, you should consider hiring someone else.

J.D. Power U.S. Consumer Satisfaction Study 2020

4.  “Interview” Your Mortgage Lender By Asking Some Questions

Interviewing the lender is actually a positive move that you want to make. Finding more about their reputation may not be enough. You need to be concerned about their qualifications and skills. If it is a broker, is he licensed? Also, you need to asses the kind of programs they offer. Not all offer the FHA, VA or the USDA Rural Development Loans. and that brings us to the next step.

By comparing loan estimates and interest rates, you can determine the most cost-effective option. However, there are some important questions to ask your lender in order to get the best decision for your needs:

  • Which type of mortgage is best for me? Your mortgage lender should be able to tell you straight away what type of mortgage option best suits you after evaluating your credit report.
  • How much down payment will I need? Though a 20% down payment is the ideal percentage, it is not always required. There are lenders that require as low as 3% down payment or even no down payment. a reliable lender should be able to walk you through the various down payment choices.
  • What is my interest rate? This should be one of the topmost questions on your mind because it affects the total amount you pay for the house. Though it depends on your credit score and down payment, other factors such as benchmark interest rates as set by the Federal Reserve can have a significant impact on mortgage interest rates. Try to know how much interest you would be paying. If possible, compare to the benchmark rate. Also, try to ascertain if the interest rates are fixed or variable.
  • What will my monthly payment be? This question is indirectly answered by the previous one, but it always makes sense to clarify especially since the interest rate is annualized. Asking the question breaks your payment down to the basics. You would know right away if you can afford the mortgage and how it would affect your finances going forward.

A typical home buyer in the United States puts a down payment of less than 20%, based on a report from Zillow in 2019. This chart shows that 56% of homebuyers in 2019 paid a down payment of less than 20%, compared to 39% of homebuyers who paid at least a 20% down paymentChart: Size of Down Payment Home Buyers put Down in the U.S. 2019

5. Apply For a Your Mortgage Loan

It is done! You are in your final step.

The exact procedure for applying a mortgage online varies by lender. In general, the steps are as follows.

  • Complete the online application: Once you've found the website of a lender with the best terms for your situation, click apply and fill out the online application form.
    Import Your Financial Details: Some lenders have a feature that allows you to connect your payroll portal and bank account in order to import your relevant financial details.
  • Submit Your Documentation: The lender will provide you with a list of additional documentation needed to support your application. This may be something you can upload to the lender's application portal. If this is not an option, you will need to fax, mail, or bring the documents to a local branch.

Some of the information needed include:

    • Your personal income.
    • The debt you owe.
    • Your credit score and history (see how to achieve a great credit score).
    • The amount of loan that you may be seeking.
    • The value of the house you are buying or refinancing.
  • Organize Inspections and Appraisals: Just like with a traditional lender, you'll need a home inspection, and your lender will order an appraisal. These are required to confirm the property's valuation and condition.
  • Provide Proof of Insurance: You must also obtain homeowner's insurance for the property and provide proof of coverage to your lender.

Finally, you will be required to attend a closing appointment. This could be done online, or you could be required to attend an in-person appointment. You will also need to pay the closing costs and make your down payment at this point.

As you can see, while some lenders have a completely digital process that includes document e-signing and video chats with digital notaries, others require in-person meetings at a real estate office or local branch.

FAQs

One of the simplest ways to do so is to shop around. In fact, getting multiple quotes saves buyers an average of $1,500. You can save even more money by increasing your quotes, so do so if you want to save money right away.
You can also ask your lender to match a lower offer you received elsewhere. Many lenders will do so in order to keep you as a customer, and it is an excellent negotiation tactic for lowering your mortgage payment.

When it comes to mortgage insurance, you have two options:

  • Borrower-Paid Mortgage Insurance
  • Lender-Paid Mortgage Insurance (LPMI)

Most of the time, your PMI will be the borrower's mortgage insurance (BPMI). This is the type of PMI that is usually mentioned by lenders. BPMI is a type of mortgage insurance that is paid for as part of your monthly mortgage payment.

Lender-paid mortgage insurance (LPMI) means that your lender pays for your mortgage insurance up front, but your mortgage interest rate is higher to compensate for the payment. The interest rate increase for LPMI is typically 0.25 percent to 0.5 percent.

Brokers are usually free for most mortgages. Furthermore, using a broker is less expensive than going directly to the bank because they can usually negotiate better mortgage deals for you.

Commercial loans, small loans, and unique complex situations are the only situations in which brokerage fees can be charged in advance. All fees charged by the broker must be listed in their credit quote; simply request a copy.

You must look beyond the interest rate and consider the larger financial picture. You will be able to build home equity faster if you pay off your mortgage in 15 years. However, it also implies that you may have to pay the price at the expense of other financial objectives.

The rate on a fixed 15-year fixed-rate mortgage has been below 7% from 2005 to 2021, according to Frediemac. The highest mortgage rate recorded in this period was 6.07% in 2006, and this period was followed by a gradual decline until 2012 when the interest rates fell to 2.93%. The lowest rate on a fixed 15-year mortgage was reported in the first quarter of 2021 at 2.28%.

Chart: Rates on 15-Year Fixed Rate Mortgage in the U.S. 2005-2021

Long-term perseverance in saving and investing will give you more freedom. However, you may grow tired of taking on debt burdens in this case. Finally, choose the method that best fits your budget and provides you with peace of mind.

According to data obtained from Freddie Mac, the interest rate on a 30-year conventional mortgage has been on a gradual decline. In 1975, the rate of the 30-year conventional mortgage was 13.74%, and it has declined to 3.08% in 2021. Mortgage lenders lower mortgage rates as a way of stimulating growth in the housing market.

Chart: Rates on 30-Year Conventional Mortgage in the U.S. 1975-2021

 

Make large withdrawals or deposits as little as possible. This may raise red flags with the lender and result in your application being rejected. Also, do not change jobs during this time. You want your income stream to remain consistent in order to demonstrate stability and dependability.

Also, don't run up a line of credit with your home equity, and don't close out your credit accounts. Finally, refrain from making payments on any collections. Your credit score may suffer as a result.

Because balloon mortgages were not as popular prior to the 2008/2009 financial crisis, not all lenders offer them. As a result, whether you can get a balloon mortgage depends on current availability. In general, you can get lower rates, but some lenders are hesitant to offer balloon mortgages because they carry more financial risk.

Getting pre approved for a mortgage is similar to an application process, but some lenders can provide you with a decision within hours. You'll begin the process by filling out an application form. This means you'll have to provide identifying information such as your name, date of birth, and Social Security number.

The lender will be able to pull your credit based on these details. This will necessitate a hard inquiry, which may have an impact on your credit score. However, if you are shopping with multiple lenders in a short period of time, the combined checks are usually counted as just one inquiry.