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How to Choose a Mortgage Lender

Written by Allison Martin

Allison Martin is a personal finance enthusiast and a passionate entrepreneur. With over a decade of experience, Allison has made a name for herself as a syndicated financial writer. Her articles are published in leading publications, like, Bankrate, The Wall Street Journal, MSN Money, and Investopedia. When she’s not busy creating content, Allison travels nationwide, sharing her knowledge and expertise in financial literacy and entrepreneurship through interactive workshops and programs. She also works as a Certified Financial Education Instructor (CFEI) dedicated to helping people from all walks of life achieve financial freedom and success.

Updated November 29, 2023​

7 min. read​

For most, buying a home is one of the largest purchases they’ll make in their lifetime. Unless the home is purchased with cash, it’ll be necessary to borrow the funds from a traditional bank, credit union or online mortgage lender.

Not all financial institutions are the same, though, so it’s a good idea to do your research to ensure you’re getting the best deal. It’s equally important that the lending process is as seamless as possible.

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Choosing a Mortgage Lender

Before you can select the right mortgage lender, it’s vital to familiarize yourself with the types of mortgage lenders that exist. Once you’ve done so, there are some factors to evaluate to find the best choice. In the meantime, you should also be preparing your finances for homeownership if this is your first rodeo or to get approved for another home loan if you currently own or have owned before.

What are the Types of Mortgage Lenders?

Here are the different types of mortgage lenders to be aware of:

  • Direct lenders: traditional banks, credit unions or online lenders that originate mortgage loans and service them through their mortgage department or a designated third party once they are funded
  • Mortgage brokers: licensed mortgage professionals who shop your information around to find the best deal on a home loan and help you navigate the lending process from start to finish (usually for a fee of 1 to 2 percent of the loan amount)
  • Correspondent lenders: they also originate and fund loans directly but typically sell them off shortly following the closing
  • Hard money lenders: private individuals or investors that extend loans with brief loan terms – usually one to five years – and steep fees
  • Portfolio lenders: a lender that extends mortgages – many of which are non-conforming – to borrowers but keeps them in-house following funding instead of selling them off
  • Wholesale lenders: these types of mortgage lenders do not interact directly with borrowers but with mortgage brokers, instead offering discounted home loan products

Before You Choose a Mortgage Lender

Prior to starting the mortgage application process, take these steps to properly prepare your finances and give yourself the best shot at getting approved.

Check Your Credit Score and Financial Situation

Your credit rating provides insight into how you’ve previously managed your debt obligations. The minimum credit score you need in order to qualify for a mortgage depends on the type of home loan you select. Remember that the lowest interest rates are generally reserved for borrowers with excellent credit scores, so it’s worth improving your credit health if it’s less-than-stellar to possibly qualify for a lower interest rate and save money.

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Pay Down Your Debt

Your credit score is not the only factor lenders weigh heavily when deciding if you’re a good fit for a home loan. They also compute what’s referred to as your debt-to-income (DTI) ratio to determine if it’s acceptable. This percentage, which is calculated by dividing the sum of your monthly debt payments by your pre-tax income, should not exceed 43 percent, although some lenders allow DTIs of up to 50 percent.

If your DTI is well above 43 percent, consider paying down your outstanding credit card balances to lower them. Or you can pay off some of your loans so their payment amounts won’t be included in the equation. But, most importantly, stop using credit cards and avoid taking on new debt at least three months prior to applying and waiting until after the loan is funded so the correct debt amounts will be reflected on your credit report used by the lender.

Know Your Budget

Even if a lender approves you for a higher amount than you expected, it’s up to you to run the numbers to determine what you can comfortably afford. Remember, the DTI ratio they use to compute your maximum loan only includes debt and not everyday expenses. So, you want to take a look at your current spending plan to calculate a loan amount that comfortably fits and won’t stretch your budget too thin.

Understand Your Mortgage Options

It’s also vital to understand what types of mortgage options may be available to you. When searching for lenders, this will make the process a lot easier as you cross lenders who don’t offer these programs off your list.

If You Can, Save for a Down Payment

A higher down payment gets you a lower monthly mortgage payment since you’ll be borrowing less from the lender. Plus, you may be able to avoid mortgage insurance, which can add several hundred to your monthly payment, by putting at least 20 percent down.

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Secure Income Stability

Lenders want to see at least two years of work experience, preferably in the same industry. You should also have consistent, verifiable earnings. But if you don’t meet these requirements, it’s worth securing a stable source of income before applying.

Things You Should Consider When Choosing a Mortgage Lender

When you’re ready to take the next step toward buying a home, here’s what to consider as you research lenders.

Application & Approval Requirements

What are the lender’s eligibility criteria for the loan program you’re considering? Do you meet the minimum credit score and DTI thresholds? Are your reserves adequate enough to get approved for a home loan? Does the lender have other requirements you need to meet to qualify for funding?

Also, inquire about down payment options. Some lenders allow a much lower down payment than others, particularly for government-backed loans.

Ease of Lending Process

Can you apply and upload any required documentation, or must you visit a physical branch to get the application process started? Is it streamlined, and will you be granted access to an online portal that lets you monitor the progress of your loan application so you’ll know where you’re at in the lending process?

Also, ask about the preapproval process, which will indicate your purchasing power and can facilitate a smoother home-buying experience. Ensure that you understand the steps and document requirements for preapproval, as it may vary between lenders.

Fees and Costs

Does the lender charge origination fees? What should you expect in terms of closing costs? Are the amounts comparable to what others in the industry charge? Can you buy mortgage points to lower your interest rate, and if so, how much do they cost?

Request for a detailed breakdown of loan costs, including origination fees, appraisal fees and closing costs. This will help you identify any potential hidden charges and facilitate a more informed comparison when comparing lenders.

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Loan Product Types and Terms

Does the lender offer a wide range of options? Is the loan product you’d prefer available? If so, with what terms? Most home loans span 15, 20 or 30 years.

Depending on your financial goals, you’ll want to choose a term that minimizes your total interest costs while maintaining manageable monthly payments.

Consider various options like fixed-rate mortgages, adjustable-rate mortgages, or government-insured loans, such as the Department of Veteran Affairs (VA) or Federal Housing Administration (FHA) loans.

Lender Reputation and Customer Service

Is the lender reputable? Are they licensed to do business in your state? What do reviews from past and current borrowers indicate about their reputation and level of customer service? Are representatives available to assist you during hours that work for your busy schedule? All of these factors will also play a role in helping you determine if the lender is a good choice for you.

Penalties and Other Conditions

Are there early repayment penalties if you decide to pay the loan off early? Does the lender have any other conditions you should be aware of?

Lender Benefits

Can you get prequalified online without impacting your credit score? If you’re a good fit for a loan, how long does it take to get preapproved? Are there any other benefits, like closing cost contributions, that make the lender a top prospect?

Also, does the lender offer a mortgage lock if you want to secure your mortgage rate early? Doing so can help protect you from potential rate fluctuations during the loan process and ensure that your rate remains stable when closing.

Some Questions You Should Ask a Mortgage Lender

When you’re ready to start exploring your options, here are some specific questions to ask the mortgage lenders you’re considering.

  • What types of loans do you offer?
  • What are the mortgage interest rates and fees?
  • What are the different loan terms?
  • What should you expect during the preapproval process?
  • What are the down payment options?
  • What is the process to lock your interest rate?
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Comparing Mortgage Loan Offers

Once you’re preapproved with at least three lenders, the next step of the mortgage process is to compare mortgage loan offers or loan estimates. When evaluating your options, consider these factors:

  • Interest rates: Lower rates generally mean lower monthly payments for consumers, so it’s vital to compare interest rates amongst various lenders. If the rates you’re quoted are on the higher end because of your lower credit scores, consider improving your credit health and reapplying to make your monthly mortgage payments more affordable.
  • Closing costs: These are one-time fees you’ll pay when closing on your home. They may include appraisal fees, credit report fees, and origination fees. Compare closing costs from different lenders, as they can vary widely.
  • Loan terms: Your mortgage term is the length of time you have to repay the loan. As mentioned above, popular terms are 15, 20 or 30 years. Shorter terms may have higher monthly payments but lower overall costs, while longer terms have lower payments but end up costing people more in interest over the life of the loan.

Keep in mind that the mortgage company may charge additional fees, such as prepayment penalties or private mortgage insurance (PMI), depending on the type and size of your loan. Compare these extra costs when comparing offers.

Choose the Best Mortgage Lender for You

Ultimately, deciding which mortgage lender is most ideal comes down to personal preferences and financing situations. Hence, it is important to do your research and shop around for the best deal.

As suggested, talk to at least three lenders to get a sense of how they can assist with your lending needs. Be sure to discuss the specifics of their loan offerings, including the interest rates, fees and terms you can expect.

Also, be sure to shop around with several lenders, including traditional banks, credit unions, online banks, mortgage brokers, and online lenders. Each has its strengths and weaknesses, so weigh your options carefully. To illustrate, if you’re looking for a VA loan or a USDA loan, some lenders may specialize in these types of products and provide better guidance and support.

Most importantly, consider the reputation and overall customer experience each lender provides. Reading reviews or asking for referrals from friends and family members can give you an idea of potential lenders’ trustworthiness and responsiveness. Plus, picking a reputable lender can help you avoid headaches during the home-buying process.

CrossCountry Mortgage is a reputable lender with years of experience and a wide variety of loan options to meet your needs. They have a proven track record of providing exceptional service throughout the entire lending process, from pre-approval to closing. Their team offers personalized assistance and guidance to ensure that you have the best possible experience when buying your home. Additionally, their mortgage loan officers are available to answer any questions you may have so that you feel comfortable and confident in your decision. Get in touch by filling out this simple online form – no obligation required.

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Frequently Asked Questions (FAQs)

Is It Better to Get a Mortgage from a Bank or a Private Lender?

Banks typically offer more competitive interest rates, a wider variety of loan products, and potentially lower upfront costs. On the other hand, private lenders are often more flexible with their underwriting guidelines, which might make them a good option for your
financial needs if you have unique income or credit situations.
Carefully consider your needs and financial situation before choosing between a bank or a private lender.

How Do I Know If My Mortgage Lender Is Reputable?

To ensure your mortgage lender is reputable, follow these tips:
Verify the lender’s license: Check your local government website to ensure they are licensed to offer mortgages in your area.
Read reviews and testimonials: Look for feedback and ratings from past customers to gain insight into the lender’s performance and customer service.
Compare rates and terms: Ensure the lender’s interest rates and loan terms are competitive and in line with the current market.
Ask for recommendations: Get referrals from friends, family, or colleagues who have had positive experiences with mortgage lenders.

What Do You Consider As Red Flags on Mortgage Loan Applications?

Some common red flags on mortgage loan applications include:
Income inconsistencies: If your income significantly changes between pay periods, lenders may question your ability to consistently make mortgage payments.
High debt-to-income ratio: Lenders prefer borrowers with a debt-to-income ratio lower than 43 percent, as it signals an acceptable level of debt that doesn’t put you at risk of being overextended.
Incomplete or incorrect application information: Providing false or incomplete information can cause delays and may even lead to a loan denial.
Rapidly increasing debt: A sudden increase in installment debt or excessive credit card usage can raise concerns about financial stability.

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