Before You Choose a Mortgage Lender, Read These Tips

Someone out there wants to help save you time, stress, and money. Here’s how you find them.

Mortgage lender illustration
Image: HouseLogic

Everyone in the market for a house has different wants — pre-war charm, a lush backyard, a welcoming front door in Pantone Ultra Violet, perhaps — but at the end of the day, they all share a need in common: money. Lots of it.

That’s where your mortgage lender comes in.

The right lender can save you time, anxiety, and loads of cash. And the right loan officer — the professional who represents the lender — can be a powerful ally when you close on a mortgage. As with any potentially life-altering partnership, it’s important to choose wisely.

Only You Know Which Lender Is Your Type

There are three types of mortgage lenders — retail banks, credit unions, and mortgage banks — as well as mortgage brokers, who compare loan products via a coterie of potential lenders to help you, the client, find the right one. Before you start narrowing down the candidates, you have to know what you’re looking for, and where to find it. Let’s talk about your options. 

Retail Banks

What they are: These are your Chases and Banks of America, plus your local banks. They do their own underwriting (in a nutshell, investigating your finances), so retail banks, especially the smaller ones, can sometimes offer lower fees and less-stringent credit requirements. If you like to have your accounts all in one place, you may want to use your own bank or credit union. 

Who you’ll work with: You’ll be assigned a loan officer, who will receive a commission or bonus for writing your loan.

Credit Unions

What they are: They’re not-for-profit and customer-owned, so they’re not beholden to shareholders like a bank. Because of that and their not-for-profit tax status, they typically offer more personal service and lower fees. The flip side is less convenience: They have fewer branches and ATMs. 

And to apply for a loan, you must be a member of the credit union’s community, which could be faith-, employment-, interest-, or union-based, among other things. That said, it’s typically not difficult to become a member; the National Credit Union Administration’s Credit Union Locator is a tool for finding credit unions near you. 

Who you’ll work with: As with a bank, you’ll be assigned a loan officer, who will receive a commission or bonus for writing your loan.

Mortgage Banks

White-Glove Treatment or Lower Rates?

Getting in touch with an online lender may be more difficult than with traditional lenders. If you’d prefer more hand-holding, consider whether online lenders’ often lower rates and fees are worth the tradeoff.

What they are: These banks, such as AimLoan and PennyMac, only offer home loans. Many online lenders, like Rocket Mortgage by Quicken Loans, operate as mortgage banks.

Who you’ll work with: A mortgage bank will assign you a loan officer, who will receive a commission or bonus from the lender’s gross fees for writing your loan. An online lender is going to offer less hand-holding.

Mortgage Brokers 

What they are: Mortgage brokers are essentially personal home loan shoppers — they act as liaisons between home buyers and mortgage lenders to help people find the lowest rates and the best mortgage terms. They’re able to get home buyers the best mortgage rates because they leverage their existing relationships with lenders — something individual home buyers can’t do. By doing the heavy lifting for the borrower, the idea is that they make loan shopping more convenient — and perhaps a bit faster. 

Who you’ll work with: A mortgage broker can be an individual agent or a group of agents, who act as independent contractors. In exchange for their services, mortgage brokers typically charge a 1% to 2% fee of the loan amount, which is either paid by the borrower or the lender at closing.

Now that you’re armed with the basics, you’ll want to give yourself time to weigh the options about which lender, exactly, to work with.

It Pays to Shop Around Before You Commit

Over the life of the loan, seemingly subtle differences could add up to tens of thousands of dollars. That money belongs to future you and all your dream vacations, renovations, and remodeling #goals.

So before you choose your specific lender …

  • Thoroughly research any retail bank, credit union, mortgage bank, mortgage broker, or online option you’re considering. Make sure you’re clear on what they can offer you. About one in five (21%) home buyers said they regret their choice of mortgage lender, according to a J.D. Power survey. You’re doing your homework so that won’t be you.
  • Interview lenders. You’re aiming for a shortlist of three. (You’ll see why it’s three in a minute.) If you’re thinking about selecting an online lender, make sure you take into account these tips and tricks.
  • Don’t be shy about seeking advice. Survey your family, friends, and coworkers —  especially the ones who are nerdy about money.
  • Ask your real estate agent for a second opinion. They have experience with reputable lenders, particularly in your city or town.

Now, let’s say you’ve narrowed your list of potential lenders to at least three candidates. The next step? Finding out whether they will give you a loan.

You Should Seek Out a Lender’s (Pre-)Approval, Too

There’s a world of difference between being pre-qualified for a loan and being pre-approved. Pre-approval means you’ve got skin in the game. It means you’re a boss. And it’s proof that you can buy.

Besides being the grown-up thing to do, pre-approval puts you in a better position when you make an offer. Everyone takes you more seriously. Pre-approval provides evidence to your real estate agent and the seller (or seller’s agent) that a trusted financial institution is willing to finance the purchase.

In most housing markets, sellers are going to expect your to be pre-approved when you make your offer. And when you’re pre-approved, you’re more likely to have your offer accepted — or at least, you won’t lose out on a bid because you have to go back to the bank to get approved for a loan.

As for pre-qualification, it’s an approximation and not necessary unless you have no clue about your creditworthiness and just want a snapshot.

By contrast, with a pre-approval, a lender typically goes deeper and tells you more specifically how big a loan you can get. Caution here: Just because the lender says you can take out a loan for an amount, doesn’t mean you should. Consider your lifestyle and monthly budget to decide on the responsible loan amount for you. 

Keep a Lid On Credit Pulls

Lenders pull your credit to pre-approve you, which can ding your score. But don’t let that hinder your comparison shopping; credit bureaus cut mortgage shoppers some slack. Still, this isn’t the time to apply for a car or furniture loan.

To get pre-approved, you must also authorize a lender to pull your credit. 

  • Borrowers with credit scores of 760 or higher can typically qualify for the lowest interest rates.
  • Borrowers with credit scores below 650 may need to apply for a non-conventional mortgage, such as a Federal Housing Administration (FHA) loan — a government-backed loan that requires a minimum credit score of 580 but lets borrowers make as low as a 3.5% down payment.
  • Borrowers with credit scores below 580 can still qualify for FHA loans, but they’ll have to make at least a 10% down payment. The lower the score, the tighter the requirements become.

When you’re pre-approved, you’ll receive a Loan Estimate. This three-page document is about to be your new best friend.

It Makes Good Sense to Get Pre-Approved by at Least Three Lenders

A Loan Estimate spells out a future loan’s terms, including:

  • The interest rate
  • The length of the loan
  • Estimated costs of taxes and insurance
  • How interest rates and payments might change over time
  • Other important financials

By comparing loan estimates, you can effectively size up your loan options and decide which lender is best for you — and your future. (If you need help navigating the details, the Consumer Financial Protection Bureau offers a sample Loan Estimate with helpful tips and definitions.) 

Getting pre-approval early in the process also gives you an edge over other buyers. Here’s why: 

  • The amount you’re approved for can help you determine your price range, and thus save time and frustration when shopping.
  • It sends a signal to your agent and sellers that you’re serious about buying a home.
  • It’ll help you move quickly to make an offer when you see a home you like.

And it’s an excuse to celebrate! You now have everything you need to move ahead with that one special lender — and, at the same time, connect with an officer or broker who can help you select the home loan product that’s best for you. 

So have a cocktail. Do a dance. Lay back and relax in one of those fancy sheet masks. You’re a (huge) step closer to getting a new house.

HOUSELOGIC

HouseLogic helps consumers make smart, confident decisions about all aspects of home ownership. Made possible by REALTORS®, the site helps owners get the most value and enjoyment from their existing home and helps buyers and sellers make the best deal possible. 

Sharp Homeowners Know June Is the Best Time to Do These 5 Things

Like cleaning your siding — just be sure to start from the bottom and go up.

Do This Now illustration arm with watch
Image: Simone Golob/Offset

Could it really be summer?!

Tackle these five summer maintenance tasks during June’s longer days and better weather — and save yourself time and money this winter.

#1 Update Outdoor Lighting

Outdoor stone steps lit with pathway lighting
Image: Rosann M. Kelley, photo/ Outdoor Artisan, Inc., design

In June, winter nights are probably the last thing on your mind. But early summer is the perfect time to plan for those “OMG it’s only 4:30, and it’s already dark ” moments by adding or updating landscape lighting.

The most energy-efficient, easy-to-install option is solar lighting, but it won’t perform as well on dark or snowy days. For light no matter the weather, install electric.

LED bulbs last up to five times longer and also use less energy than comparable bulbs.

#2 Clean Your House’s Siding

Home with bright green painted siding
Image: Kristin Diehl

With a bit of preventative maintenance, your home’s siding will stay clean and trouble-free for up to 50 years. Fifty years! Clean it this month with a soft cloth or a long-handled, soft-bristled brush to guarantee that longevity.

Start at the bottom of the house and work up, rinsing completely before it dries. That’s how you avoid streaks.

#3 Focus on Your Foundation

Brick exterior wall with damage
Image: Martb/Getty

There’s no better time for inspecting your foundation than warm, dry June. Eyeball it for crumbling mortar, cracks in the stucco, or persistently damp spots (especially under faucets). Then call a pro to fix any outstanding issues now, before it becomes an emergency later.

#4 Seal Your Driveway Asphalt

Sealed asphalt driveway at pink house
Image: Cveltri/Getty

Your driveway takes a daily beating. Weather, sunlight, cars, bikes, and foot traffic – all of these deteriorate the asphalt. Help it last by sealing it. Tip: The temperature must be 50 degrees or higher for the sealer to stick, making June a good month for this easy, cost-effective job.

#5 Buy Tools

Lawn tools hanging in a garage
Image: Jo Facer, The Edible Flower

Thanks to Father’s Day, June is the month everyone can get a deal on tools, tool bags, and that multitool you’ve had your eye on. If it’s time to replace a bunch of tools, or you’re starting from scratch, look for package deals that offer several at once. These can pack a savings wallop, offering 30% off or more over buying the tools individually.

Kelly Walters headshot

KELLEY WALTERS

Kelley Waltersis a Southern writer and editor. She focuses on interior design and home improvement at outlets from HGTV to Paintzen. She lives in Italy a month every year, drinking Negronis and writing in internet cafes.