Most homebuyers put more effort into shopping for furniture for their new home than they do to find a lender to whom they will be in debt for the next 15 or 30 years. They end up picking a lender who advertises the lowest interest rates — rates most borrowers will never see because the rates that lenders advertise are available only to those with the very best credit. We’ve compiled some tips below on how to find the right lender.
Types of Mortgage Lenders
From small community banks to the largest megabanks, these are regulated by state and federal agencies. Plus, most provide a full-range of financial services, including savings and checking accounts. Banks are many borrowers’ first choice since they already have a relationship with them.
These lenders specialize in consumer and mortgage lending. Unlike banks, they don’t take deposits. In recent years, non-banks have grown to dominate FHA lending.
Credit unions are member-owned and today, many are a source of mortgages for their members. Because they lend only to those with accounts at their facilities, credit unions tend to have a different relationship with their customers than other lenders. Today, they originate about 10 percent of all mortgages.
Savings and loan associations
S&Ls are local associations created to make mortgages to local borrowers. In the past, they dominated mortgage lending but the savings and loan scandals of the 1980s decimated their numbers. Today, they are harder to find.
Brokers don’t originate mortgages. They are middlemen who represent a variety of lenders and can help borrowers structure their loan and find the right lender.
Steps to Hire a Lender
Start with sources you trust.
You might start with your real estate agent, who probably works with several lenders and can answer your questions about working with them. Talk to friends and members who have recently bought or refinanced a home. Furthermore, check out recommendations at consumer-oriented financial services sites like NerdWallet, SmartAsset, ConsumersAdvocate, and ConsumerAffairs.
Before you start shopping for a home, it’s a good idea to get pre-approved for a mortgage from a lender. You don’t have to use the lender that pre-approves you so you can use the pre-approval process to learn a little about lenders.
To pre-approve you for a mortgage, each lender must check your credit history, known as a hard credit pull. Each hard pull will temporarily lower your credit score by several points. If you apply to more than one lender, do so at the same time. FICO scoring models consider all inquiries within a 45-day window as a single hard credit pull so your credit will suffer only one hit. If you would rather not lose many points on your credit score, apply for only one pre-approval, but plan on applying to several lenders for your mortgage (see below).
New regulations by the Consumer Finance Protection Bureau require that within three days of receiving your application for a mortgage, lenders must send you estimates of all the costs involved, including their fees and the mortgage interest rate they will charge you. The Consumer Financial Protection Bureau, or CFPB, designed a program to help borrowers so you might apply to at least three lenders so that you can compare their costs and the rate each one offers you. As with your pre-approval, apply simultaneously to several lenders so that your credit score suffers only one hit.
After you close on your new home and move in, you may receive a notice from your lender that your mortgage has been sold and will be serviced by a different company. This is a common practice since lenders retain as few mortgages as possible. Companies that service mortgages are specialists and help borrowers with services like alerts, automatic payments, and customer service.
For more information on how to finance your home, check out the Homes.com How to Finance Your home guide.