How to Choose the Right Lender

When you are house hunting, choosing the right mortgage lender can be just as important as finding your dream home. While some aspects of the home buying process are standard, there are nuances surrounding mortgage products and the terms that accompany them, so choosing the right mortgage lender to help you navigate is critical. 

With several different types of mortgage lenders available, it helps to narrow down the field so that you can find one that best suits your needs. If you have been asking yourself how to choose a mortgage lender, keep reading because we will answer that question and more in this article. 

How to Prepare Before Choosing a Mortgage Lender: 

Before approaching any mortgage lender, you can take steps to prepare for the home buying journey. Even prior to seeking pre-approval status from a mortgage lender, you’ll want to ensure that you are financially ready for this major investment. 

Some of the steps you can take include: 

  • Know your credit score. A good rule of thumb is to find out your credit score several months before attempting to choose a mortgage lender. For example, a conventional mortgage will require you to have a credit score of at least 620. Determine if your score needs improvement; the stronger your score, the better your mortgage terms will be. To improve your score, pay down any credit card balances, make payments in a timely fashion, and refrain from triggering any inquiries on your credit report by applying for more credit.  
  • Save money for a down payment. When buying a home, the more money you have saved for a down payment, the better. Depending on the type of mortgage, the down payment threshold has historically been 20%, though if your credit score is strong enough, it could be as low as 3% of the home purchase price. With certain loans, including the USDA or VA mortgage, no down payment is required, but this is the exception.  
  • Show stable income. No matter which mortgage lender you choose, they will want to see evidence that you have a steady income so that they can be confident you can afford your mortgage payments in the future.  

Different Types of Mortgage Lenders

Before choosing a mortgage lender, it helps to understand the landscape, so you know what to expect. Below is a roundup of main types to help you when choosing a mortgage lender: 

  • Traditional Banks: While many things have changed in the mortgage lending space in the two decades, financial institutions are one type of mortgage lender that has largely remained the same. If you go this route, you will be given a loan officer to work with throughout the mortgage process. 
  • Credit Unions: Like banks, credit unions can handle the mortgage process for you from beginning to end. To be eligible, you must be a member of the credit union, the criteria for which is generally to have some theme in common with other customers. For example, members might live in a particular region or have worked for the same employer.  
  • Online Mortgage Lenders: Consumers are no longer limited to legacy financial institutions when choosing a mortgage lender. The rise of the internet and technology has paved the way for online mortgage lenders to enter the fray. If it is speed, agility, and efficiency you’re after, online mortgage lenders could be the solution. Most of the mortgage application process unfolds online.
  • Mortgage Lender Marketplaces: You might also come across platforms that serve as marketplaces. While these companies are not direct lenders, they act as brokers and match potential homebuyers with a list of mortgage lenders that might be suited for them. 

What’s the difference between being pre-approved and pre-qualified for a loan?

Pre-approval and pre-qualification are two very different things. In order to be pre-qualified, typically a lender will ask you questions about your income, debts, and credit scores in order to determine, with broad accuracy, whether you may be qualified to obtain a loan of a certain amount. Pre-approval requires a more scrupulous examination of buyers’ qualifications and typically requires a hard credit pull to review scores and debts as well as proof of income/employment.

No matter which route you go, every buyer should understand how absolutely critical having a great lender on your team is. The lender that they choose very directly affects their real estate transaction and all parties involved. While many buyers tend to ask questions about rate, terms, and fees, which are completely justified, they fail to understand that their chosen lender’s credibility, reliability, and communications style is critically important to the seller as well. In this current market especially, sellers can and will eliminate buyers’ offers if they do not have a responsive and proactive lender on their side.  Your Realtor should definitely be able to refer you to a few great lenders to choose from.

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