How to Choose a Mortgage Lender

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

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For most, buying a home is one of the largest purchases they’ll make in their lifetime. And unless the home will be 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 you want 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 make an informed decision. 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 that 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 managed debt obligations in the past. 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. 

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 it. 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. 

Zero Mortgage - Zero Application Fees
Get a new home loan or refinance your existing property. No application fees, no underwriting & no processing fees. Zero Processing Fees. Zero Hassles.

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 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. 

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? 

Ease of Lending Process 

Can you apply and upload any required documentation, or do you have to 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? 

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? 

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? 

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? 

Penalties and Other Conditions

Are there early repayment penalties should 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? Does the lender offer a mortgage lock if you want to secure your mortgage rate early? Are there any other benefits, like closing cost contributions, that make the lender a top prospect? 

Get a Zero Hassle Mortgage Lending Experience

There’s no shortage of mortgage lenders to choose from. But if you want a hassle-free online lending experience, consider Zero Mortgage. Its lending team goes the extra mile to ensure the purchase and refinance loans offered to customers are competitive and feature some of the lowest rates in the industry. Plus, you’ll enjoy zero application fees, underwriting fees or hidden lender fees- it’s the Zero Mortgage way of doing business! 

Navigate to the website to learn more about its offerings or request a free, no-obligation rate quote. It’s free, only takes a few minutes of your time and won’t impact your credit score. 

Zero Mortgage - Zero Application Fees
Get a new home loan or refinance your existing property. No application fees, no underwriting & no processing fees. Zero Processing Fees. Zero Hassles.

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