You have your down payment saved; you have your tax documents in order; you know how big of a house you need, and you know where you want to look. At this point, the only thing standing in your way of getting the home of your dreams is finding a mortgage lender — and if you aren’t careful, the lender you choose could continue to be an obstacle to homeownership throughout the home buying process.
Fortunately, there is a mortgage lender for every buyer — you just need to know what lender is right for you. Here’s a guide to finding the right mortgage lender, so you can have a smooth and successful real estate experience.
Understand the Types of Lenders
Not all mortgage lenders are created equal. Different types of lenders are more appropriate for different types of homebuyers, so understanding your options will help you find the right lender for you. You are most likely to encounter:
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Mortgage brokers
Most homebuyers work with mortgage brokers, who are licensed professionals who match borrowers and lenders. They help to find you the best loan possible, with low-interest rates and fees, and for their services, they charge a small percentage of your final loan amount.
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Direct lenders
When a bank, credit union, or other organization provides mortgages directly to consumers, they operate as a direct lender. This keeps the loan application and processing procedure in-house, which means you can ask questions about rates, fees, terms, and the like. However, different direct lenders have different processes, so you might qualify for wildly different loans from different lenders.
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Correspondent lenders
These lenders originate and fund loans like direct lenders, but as soon as the loan closes, they sell the loan to larger lending institutions. This shouldn’t change any of your loan’s terms, but it can be confusing if you aren’t expecting it. You can ask your lender about correspondent practices if you want to avoid this happening to you.
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Wholesale lenders
In direct opposition to direct lenders, wholesale lenders never interact with borrowers. You might use a wholesale lender if you rely on the services of a mortgage broker, which allows you to take advantage of the discounted rates available from these lenders.
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Hard-money lenders
You probably won’t work with a hard-money lender, which is a private investor who provides short-term loans secured by real estate. Because these loans must be repaid in one to five years, and because they have steep fees, hard-money lending is best reserved for special circumstances, like house flipping.
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Portfolio lenders
These lenders tend to be smaller, like community banks and credit unions, and they utilize their clients’ bank deposits to fund their loans.
When beginning your homebuying journey, you might talk to a few lenders in your area — or in the area in which you want to buy. These mortgage lenders in Charlottesville, VA, are exceptionally experienced in helping home buyers in their region, but if you are looking on the West Coast, you should talk to lenders on that side of the country to better understand your options and make an informed decision.
Know What Kind of Mortgage You’re After
No two mortgages are exactly alike, as the loan’s size, rates, fees, and terms are affected by both lender and borrower. Still, you can do some research about the type of loan you want, especially if you have unique circumstances that allow you to qualify for special loan products, like USDA loans or VA loans. If this is your experience, you probably want to work with a mortgage broker, who will help you find the right lender for your case.
Make Your Credit as Strong as Possible
The stronger your credit, the more options you have in terms of loan and lender. Higher credit scores demonstrate that you are not a risk to a lender, and many will offer you enviable rates and terms to entice your service. If you can hold off on buying a home until you can get your credit score above 700 and reduce your debt-to-income ratio, you will be in a much better bargaining position and have access to the best mortgage lenders in your area.
Read the Fine Print
Mortgage documents are long and filled with complex jargon that likely makes your eyes glaze over and your brain goes fuzzy. However, you should do everything you can to read all the contracts associated with your mortgage. Reading the fine print will prevent you from being surprised by any fees come closing day, which will make your mortgage experience that much more enjoyable.
The mortgage lender you choose could affect where and how you live for the next three decades, so it is not a choice to be taken lightly. With the right research, you should be able to find the lender and the mortgage perfect for you.
