Selecting the right mortgage lender for your home purchase should be just as important as finding the right home to buy. While it might take some legwork, settling on the right lender can ease the stress of home-buying and save you money with a low interest rate and lower closing costs. Here are some tips for choosing the right mortgage partner.
Mortgage Lenders Vary
The first thing to know is that there are a variety of lenders willing to provide you a home loan and the services they offer will vary. There are six types of mortgage providers: direct lenders (credit union, banks and other financial institutions), mortgage brokers, correspondent lenders, wholesale lenders, portfolio lenders and hard money lenders, which are private investors.
Each lender offers options that can save you money. This is why it’s important to shop around for a lender that meets your needs as you begin the home-buying process.
First, Review Your Credit Score
Before you start shopping for a lender, review your credit history so you’ll know your credit score and if there are any concerns on your report that you’ll need to address before you apply for a home loan. Each year, the three U.S. credit reporting agencies let you review your score for free at annualcreditreport.com.
Because your mortgage interest rate will be based on your credit score, you’ll need to know where you stand before you approach any lender.
Determine the Type of Loan
To help you find the right mortgage partner, you’ll need to determine the type of home loan you want. There are several different programs available and each lender has their own requirements. Comparing options will help make shopping for the right loan partner easier.
Here’s a brief description of the main types of home loans:
- Conventional Loans are best for borrowers with a higher credit score. Programs may require as little as a 3% down payment, depending on the lender.
- Jumbo Loans allow you to finance a higher dollar amount than a conventional loan. This allows you to buy a home in a preferred neighborhood or to purchase a large multi-generational home.
- VA Loans are targeted towards active military and veterans. VA loans allow buyers to purchase a home with no upfront down payment.
- FHA Loans allow buyers to get approved with a lower credit score. It also allows you to have a down payment as low 3.5% down.
Once you’ve identified the right loan for you, it’s time to find the best rates. Obtain quotes from several lenders. Select the one that not only offers you the best rate but the best terms for your loan. You can use TCU’s mortgage calculator to calculate payments and see what your payments will be based on various interest rates.
The last step in choosing the right mortgage partner is to get preapproved or pre-qualified by lenders. Preapproval consists of providing your basic income and asset figures to your lender, who then will give you a preapproval letter showing that if those figures are accurate, you will be given a loan. This can help make your offer stand out.
Pre-qualification, by contrast, is a more thorough review of your income and assets using actual documentation, and the resulting pre-qualification letter is considered stronger proof of your ability to close on a home. For this reason, many real estate agents prefer that you pre-qualify before making offers.
Typically, the information needed to complete a pre-qualification includes your Social Security Number, asset information, list of outstanding debt such as credit cards or an auto loan, the past two years of tax returns, income information from your employer and an estimated down payment.
Compare your preapprovals and pre-qualifications and choose the lender that best fits your financial situation. Ensure the loan meets your requirements for interest rate, monthly payment, fees and estimated closing costs.
Travis Can Help
Don’t know where to start? Travis can help. Learn more about home loan basics here as well as the six steps to buying a home.
As your local lender, we’ll work to find the right home loan for you. We’ll walk you through the entire home loan process so you’ll be informed every step of the way. Speak to a Travis Credit Union mortgage loan officer today. Or, start your path to homeownership online.