Buying a Home

3 Tips for Finding the Best Mortgage Lender

Jul 16, 2018, 2:17 PM | Sarah Woodbury
A mortgage lender meets with a potential client over coffee

Despite what you may have heard, choosing a lender isn’t too difficult—at least when you know what you’re doing.

But many of us are unsure of exactly what to look for in a lender. You may be wondering:

  • What makes a good lender?
  • What questions should I ask my lender?
  • How can I get the best deal on my mortgage?

In this post, we’ll try to answer these questions as well as others you may have. Follow these tips to find the best lender for your circumstances.

1. Work on Your Qualifications

Before even going to lenders, you’ll want to get your ducks in a row. Lenders want to lend to folks who don’t pose a big risk, meaning they’re able to make a good down payment, they have cash reserves, their credit score is good, and they’re not spending too much on debts.

Because of the diminished risk, better-qualified borrowers will usually get better rates.

And since everyone wants the best rates possible on their mortgage, the following are some ways you can work on your qualifications and get the attention of the best lenders:

  • Work on Your Credit – By law, you can check your credit once per year for free with the three major credit reporting companies in the US. To work on your score, make on-time payments on loans, debts, and credit cards, contest any incorrect information on your report, and be patient.
  • Save for a Down Payment – For most loans, you’ll be required to pay 3-20% of the loan amount as a down payment. Save as much as you can, since most loans will remove the required private mortgage insurance (PMI) with a down payment of 20% or more.

  • Pay Off Debts – Most lenders will take your debt-to-income ratio (DTI) into consideration. DTI refers to how much of your gross income goes to paying off debts each month. Paying off as much debt as possible will lower this percentage, which is favorable to lenders.

  • Build a Cash Reserve – Lenders look at how much you have in reserve to determine how much of a risk you are. Save up enough money so that in the case of an emergency, you have enough to pay for at least 2-3 months of mortgage payments. This not only looks good to lenders, but it will also help protect you.

And after you’ve built your qualifications (but before you look for your home), you’ll want to get pre-qualified or pre-approved. A pre-qualification is a quick, easy process. It’s basically a note saying that a lender is likely to approve you for a loan.

A pre-approval is more involved, showing that a lender has looked at more of your details and determined that they would almost certainly take you on as a client.

Getting pre-qualified or pre-approved won’t necessarily help you with finding the best lender, but it will give you an idea of where you stand, so you know if you’re set to look for a home or not. It will also help you have an edge when it comes time to make an offer on a home.

2. Compare Mortgage Rates from Multiple Lenders

We’ll start by emphasizing this: going with the first lender you find is not a good idea.

We can’t stress this enough.

Think about it this way: if you’d check a few stores before buying a $60 pair of shoes, why would you only talk to one lender before deciding to go with them for what’s likely the biggest purchase of your life?

You’ll want to go to multiple companies and get at least a few offers.

Finding a Company

Different places you can go that offer mortgages are:

  • Mortgage companies
  • Banks
  • Credit unions
  • Savings & loan institutions
  • Mortgage brokers
  • Correspondent lenders

Don’t immediately go to the big banks and assume they’re the only way to go. Your local mortgage company may offer some great rates and more personalized service. And the mortgage company that specializes in the type of loan you want to get may offer the kind of expertise you want in a lender.

One of the best ways to find a good company for your area is to ask around. Your real estate agent, friends, and online reviews can give you a good idea of who’s best in your neck of the woods.

Additionally, check that the lenders you meet with are registered with the Nationwide Mortgage Licensing System and Registry (NMLS) website. This will ensure that the company you’re working with is authorized to conduct business in your state.

Get and Compare Loan Estimates

Additionally, each lender should give you a Loan Estimate (LE), which was previously called a Good Faith Estimate (or GFE), soon after you apply with them. This document is required by law. It will give you a good idea of what costs will be with each company.

Comparing these documents between lenders will help you determine which lender has the most reasonable rates, fees, and monthly payment amounts.

Note that if a lender won’t give you a LE, you do not want to go with them.

3. Ask Questions—Lots of Them!

When you’re new to something or are in unfamiliar territory, it’s normal to want to stay quiet and nod your head.

It’s human nature. You want to feel it out. You don’t want to look dumb.

But with a mortgage, you have to overcome this—and fast. Lenders know what they’re doing, and though most of them are trying to do good business, there are some that could try to pull the wool over your eyes. Others may just be used to using jargon that can be hard to understand.

Hidden costs and clauses can surprise you later on in the process and prove to waste your time and money. Not only that, but if you’re unaware of something included in the loan, it can be harder to bring up later.

For those reasons, don’t be afraid to ask questions. You should understand what costs you’ll be paying and exactly where they come from. A good lender will walk you through the whole process and answer whatever questions you have.

7 Questions to Ask Your Mortgage Lender

The following are some questions that can help you determine whether you’re talking with a lender you want to work with. They’re not all-inclusive, but they can give you a good start:

  1. Which type of loan is best?
    According to The Balance, this question, asked at the beginning of an interaction, should get questions from your lender directed toward understanding your personal situation. That way, they can suggest a loan that will truly work best for you. If they start trying to pressure you into one type of loan before they even know about your situation, they probably aren’t the best fit.
  2. How much experience do you have with [insert desired loan type]?
    This question will help give you an idea of whether the lender has worked with the specific type of loan you’re looking for. If they don’t give a specific answer, ask them how many loans of that type they process per month. Some loans require extensive paperwork or adherence to specific rules, so experience matters.

  3. What do you mean by that?
    This is a question you should not be afraid to ask. Mortgage professionals should explain things simply, but they can get caught up in jargon they’ve become accustomed to in their place of work. Don’t be afraid to bring them back to Earth, even if you feel stupid for it.

  4. What is the interest rate and APR of this loan?
    These numbers will help you when you’re trying to compare offers from different lenders.

  5. What fees and points are associated with this loan?
    You’ll want to know if there are any additional fees such as origination fees. You’ll also want to know whether points are required or available on the loan.

  6. Will you be finished by the closing date?
    Getting involved with a mortgage company that can’t provide an on-time closing can cause some problems for you. Ask if the lender can guarantee that they’ll close by the said date so the homebuying process won’t be disturbed.

  7. What other costs are included with this loan?
    This is an important question, since there are a lot of fees that you may not be made aware of unless you ask. You’ll likely be charged for an appraisal, credit check, closing costs, and other costs, and you don’t want these to be a surprise.

Bonus: What It All Comes Down To

Once you’ve done your research, worked on your qualifications, asked mortgage questions, and compared lenders, it all comes down to how you feel.

For instance, a lender might offer you the lowest rates, but if you feel like something isn’t right or they’re not trustworthy or experienced, don’t go with them.

Some lenders are predatory and will try to pressure you into lying on your application, buying more than you can afford, or signing blank applications (to be filled in later). So if something feels off, it probably is.

On the other hand, another lender might have the greatest customer service in the world, but their prices are significantly higher than the other lenders you found. Obviously, some benefits of lenders don’t outweigh the negatives of that lender.

What we’re trying to say is this: don’t go with a lender because of just one aspect of their offer.

Always ask questions and compare with other lenders to get a feel for what’s normal. Check reviews to see how they’ve dealt with clients in the past. Weigh your options carefully. And remember that nothing should be rushing such a big decision; it takes time.

Who We Are

At Elevate Mortgage Group, we do everything we can to help you find the right loan for your unique situation. Our team is experienced and great at what they do, but they also care about each client.

Give us a call or get started online today to see what we mean.

Sarah Woodbury