If you're shopping for a new home, chances are that you will also need to find a mortgage lender. After all, most people do not have enough cash on hand to purchase a property and must obtain a mortgage. Finding the right mortgage lender can help ease the burden on both your mind and your wallet.
Identifying Potential Mortgage Lenders
There are a number of options for identifying prospective lenders. Gather at least five lenders to choose among.
Start With Your Financial Institution
If you're happy with your current bank or credit union, start there. If they have a mortgage division, they should have a mortgage specialist on hand to speak with you. Ask if there are any benefits to obtaining a mortgage if you are a current client. You'll want to speak to other mortgage lenders, though, to compare interest rates and closing costs.
Rely on Referrals
The best way to find other mortgage lenders is by asking people you know and trust who they would recommend. Family and friends can usually provide assistance, and your real estate agent will have worked with numerous mortgage companies and can provide insight into who they prefer to work with. Accepting referral fees is illegal for agents, so there's no reason an agent would recommend someone with whom they've had problems.
Check Out Reviews
Every mortgage company has reviews that you can look into online. Weed out your choices by getting rid of companies that have several bad reviews or a bad rating with the Better Business Bureau. Once you've considered their reviews, narrow your choices down to the top three mortgage lenders and proceed forward with those companies by reaching out to a loan officer at each one.
Questions to Ask Loan Officers
You'll be chatting with your loan officer quite a bit during the process because they'll need to collect various documents, speak with you about the terms of your loan, and set up a closing. So, it's important to select someone with whom you have a good rapport. Once you've selected your top three companies, you should give each of them a call and explain that you are in the market for a mortgage loan. Ask each loan officer you are considering the six following questions.
1. How Long Have You Been in the Business?
Mortgages are complex loans, and they take some time to understand. A newbie to the business will not be able to comprehend the complexities of all types of loans like someone with years of experience will.
2. What Kinds of Loans Are Offered?
Ask about the types of loans that are offered, including terms (fixed rate or adjustable rate, 15 years or 30 years). Adjustable rate mortgages are very risky, so if your loan officer is pushing you to choose that over a fixed rate, you'll want to consider someone else.
Also ask about special programs that you may qualify for, such as
- Loan options available for people with poor credit
- Low money down programs
- First-time buyer programs
- Programs for veterans
3. Is My Rate Locked In?
Lenders will quote you an initial rate dependent on your credit and loan-to-value ratio (the amount of money you're borrowing against the value of the property), but if they don't lock it in, it may fluctuate depending on daily rates.
Rates may be locked in for 15-60 days, meaning that you will have to close within that time frame to retain the rate that you were quoted. The longer the rate lock, the more time you'll have to close without having to experience a rate increase.
4. What Are My Closing Costs?
Your loan officer should provide you with a Good Faith Estimate (GFE) - a breakdown of each fee you're paying and what it covers. It should be noted that the GFE is just an estimate, so it may vary slightly at the closing. Ask your loan officer how much it could possibly change, and why.
Closing costs can range anywhere from two to six percent of the total loan amount; if it's on the high end, ask if they can lower the cost. If you provide a GFE from another company, they may be able to beat or match it.
5. Do You Keep My Loan?
Some loan officers work for a mortgage broker, which is a financial institution that works as a liaison between you and a variety of banks, shopping for the best rate. There are also mortgage companies that provide your initial loan, but then sell the loan after closing to another bank to make a quick dollar. This usually does not pose a problem, but you will not have a say in who purchases your mortgage, and it may be a company with a bad reputation in customer service.
Be sure to ask if your lender houses the loan for the entire duration or if you'll be making payments to a different bank in the future so you are aware.
6. Where Will the Closing Take Place?
Closings normally take place at the title company, but many refinances can now be completed in the comfort of your own home. If you must close at the title company, make sure it's in an area convenient to you.
Choosing the Right Lender
Once you've found a capable loan officer who has answered your questions to your satisfaction and given you the best rate and closing costs, tell them that you would like to proceed with the loan and they will begin to collect your documents.
Of course, you should only sign a contract that you have read, understood, and can be certain that you agree to. A good mortgage lender will explain everything you need to know before you head to the closing table. If something changes before closing and you aren't happy with your loan terms, you do not have to sign the closing papers.