How To Choose A Mortgage Lender With Good Rates
Finding a great mortgage lender is a crucial step when buying a home. Picking the wrong lender may cause serious repercussions for years to come. As a result, it is vital to know how to choose a mortgage lender who you can trust to provide you with money at a reasonable rate. This process requires you to understand various factors that could heavily impact your lending process.
In this article, you'll learn more about the importance of choosing the best mortgage lender and the various steps you can take to find one who works for your needs. You'll also learn about the types of lenders available to make this process easier for you. Just as importantly, you'll get an insight into how we can help you through this challenging period and get you the help you need.
Why Is It Important to Know How To Choose a Mortgage Lender?
When you're buying a home, and you're just trying to seal the deal, you might be tempted just to pick whatever lender will work with you first. That is a huge mistake because you might end up choosing someone who doesn't have your best interest in mind.
Here are a few things that might occur if you don't choose the best lender with the fairest rates for your specific buying needs:
Might Get Poor Rates
When you just pick the first lender you can find and don't take the time to choose through your options carefully, you might get a very poor rate. It's not uncommon to get rates as high as 8-12 percent when you aren't careful about this step. If you don't think that high-interest rates matter, you've never bought a home or vehicle before and are in for a rude awakening.
Struggle to Pay Your Mortgage
People with high-interest rates may find that they pay much more than other people for their mortgages. Even two or three interest rate points can add thousands of dollars of extra payment to your home bills every year. Break that down into monthly payments, and it could mean the difference between $1,000 to $2,000 mortgage costs.
Borrow More Money
The tragic reality is that many people who end up with high mortgage payments may end up borrowing more money to keep up with their prices. This situation is troubling because your debt is likely to grow. While consolidating your debt at this point may help, a poor lender may not even give you this option and keep you stuck.
Fall Into a Debt Cycle
How many people do you know who get stuck paying credit card bills with other credit cards? Unfortunately, this situation is not unusual and creates a troubling debt cycle that is very hard to escape. You may find yourself unable to break free from this cycle and get into a state where you're preceding basic home necessities in an attempt to catch up with your bills.
Lose Your Home
The sad truth is that many people have found themselves staring at months of missed mortgage payments with no ability to repay them. This situation can trigger foreclosure and a rush to find a new living space. This situation is scary, and you'll ultimately find yourself likely moving to a much less appealing location as a result of this mad rush to find a home.
Please note that we're not trying to scare you by saying that you'll lose your home! We're not fear mongers, but we also know that many people lose their homes because they don't properly prepare for their mortgage payments. Most who don't get the best lender are more likely to have a hard time paying their bills and could lose some of their quality of life in the process.
Thankfully, learning how to pick a mortgage lender, you can trust can help you avoid these potential dangers. So, before delving deep into the multiple steps that we suggest when looking for a lender that you can trust, we're going to take a look at the various mortgage lending options available for you. In this way, you should get the best experience possible and avoid serious complications in the process.
Understanding the Lending Professional Types
There are six types of mortgage lending options from which you can choose, including direct lenders, mortgage brokers, correspondent lenders, wholesale lenders, portfolio lenders, and hard money lenders. Let's break down these different types in more depth here, providing you with the insightful knowledge you need when choosing between the various options available.
Direct Lenders: May Provide Very Fair Rates
Direct lenders typically consist of banks, credit unions, and other lenders who provide money directly to you. They help create and fund your mortgages and can manage your repayment process. In addition, they'll typically create your loan rates and terms, which can be pretty fair in some situations.
The advantage of this process is that you place all your lending needs in one area and don't have to work with multiple different organizations. However, the rates may vary wildly. Some will be pretty fair, while others may be higher. So be careful when choosing this option!
Mortgage brokers: A Unique Way of Finding Loans
Mortgage brokers aren't exactly lenders but are instead independent and fully licensed professionals who help you identify a lender. The benefit here is that you don't have to do the difficult work yourself but can, instead, have these professionals do the frustrating work for your needs.
They will do what they can to help ensure that you get the best rate, but with a catch: they charge between 1-2 percent of the loan amount for their service. The lender adds this amount to your extra mortgage costs. Some people may not appreciate that additional cost, and we can understand why.
Correspondent lenders: Fast Approval, Confusing Process
This lending option can be a little confusing to some people, so it is vital to do a little explanation. After you seal the deal, these lenders originate and fund loans but then sell them to larger lending companies on the secondary mortgage market. Confused? We understand!
The benefits of this process are that you typically get approved more quickly and often get fair interest rates because the lender makes money after selling your loan. However, it can be frustrating and confusing that many people feel better just skipping altogether.
Wholesale Lenders: Can Provide Discounted Loans
Wholesale lenders work as a mysterious “person behind the curtain” by working with mortgage brokers and other independent professionals to provide loans at discounted rates. In addition, they often offer fair and reasonable loans to people who qualify for their lending platform.
Let's get the bad news out of the way first, though. You typically have to work with a broker, which can add to your loan cost. And being unable to speak directly with the lender can be frustrating to many people. Their qualification demands are usually a bit higher than other options, as well.
Portfolio Lenders: Often Work With People Who Have Poor Credit
If you have poor credit and know you're going to struggle to get a mortgage, portfolio lenders may help. They originate and fund loans based on your bank deposits, allowing you to hold onto the loan. These groups include community banks, credit unions, and savings and loans institutions.
This option is a practical choice if you have limited other lending options and is often good if you have a high bank deposit rate. However, your terms are less likely to be favorable, and your options are usually more limited, which may make this process more challenging to execute.
Hard Money Lenders: Fast Approval on Short-Term Loans
If you need money right away for your mortgage and aren't sure where to go, you might go with hard money lenders. These institutions offer quick approval times on short-term loans and can help when others do not. That said, we usually recommend that you don't go this route if you can avoid it.
The negative factors here are obvious. Short-term loans typically result in much higher monthly payments and higher interest rates and fees: often as much as 10% more. You should only go this route if you don't have any other choice, as you might find yourself asked to repay a mortgage in 1-5 years: who can afford that?
How To Choose A Mortgage Lender: A Four-Step Process
There are several steps that you can take when trying to find a great mortgage lender. We'll outline a few below to make this process smoother and more straightforward. By the time you're done, you should feel comfortable finding a lender who works well for your specific needs.
Step 1: Understand Your Credit
Here's the thing: you can find the best lender in the world but struggle to get an outstanding loan because your credit is poor. It is essential to check your credit through various free credit scoring companies and do what you can to improve your score. Try to dip your debt-to-income ratio below 43 percent first.
You may also pay off any credit cards or collections that might be lingering on your account. These steps are vital because they can help make the lending process smoother and minimize potential costs. They also help you get better interest rates in the long term.
Don't forget that your lender will definitely check your credit before they give you a single dime. If they don't like what they see, they'll provide you with questionable terms as a way of protecting themselves. Credit repair may take a few years, so you need to start this process ASAP.
Step 2: Understanding Your Repayment Budget
How much can you afford to pay every month on your mortgage?
This information is essential to know because you might quickly end up struggling if you don't stay within your expenses. A skilled lending team will work with you to streamline this process and minimize potential risks.
Before you work with any lender, though, you must understand this budget. It will not only dictate the house that you buy but also limit your mortgage options. That isn't necessarily a bad thing, as it is better to have the best mortgage rather than more choices. But it may take time.
Step 3: Research Your Options
Once you know what you can afford to pay, it is a good idea to start seeking out different lenders on the market. These professionals may vary based on the types outlined above and can provide you with various help that makes this borrowing process easier and smoother for all parties.
Make sure that you take the time to understand the different rates offered by each lender, as well as their terms. Doing so may help streamline this process before you talk to them. In addition, you can create a spreadsheet that helps to track this information and make it easier to understand.
Just as importantly, you need to know how much this process can save you. Studies have found that spending even a few hours comparison shopping can save you thousands of dollars over a 30-year mortgage. So don't be afraid to do some research before you get started.
Step 4: Apply for Preapproval
We can't emphasize this step enough: preapproval is typically required before getting great loan prices. That's because your mortgage team will look through your credit and pay history to get an accurate idea of what kind of payments you can afford for your long-term mortgage situation.
Don't mistake thinking preapproval means you've gotten your loan and a great mortgage rate, however. Unfortunately, there's a real possibility that your financial situation may change before you get approved for the loan. Your preapproval will do nothing to protect you in this situation.
Can We Help You? Yes!
If you're still unsure what steps you need to take when finding a suitable mortgage lender, we're here to help you! Our team at Goalry understands the broad range of different lending options available to you.
Disclaimer: we're not lenders ourselves and cannot give you any money. Nor do we guarantee lending success. But we can provide you with a unique platform to streamline your search.
What do we do? We provide a simple online app that you can download and use when searching for high-quality lenders. Sign up, create your profile, and begin searching through the different lenders on our list. You should find a broad range of other possibilities, each of which may work well for you. You can sort them using our filters, including finding those with the fairest interest rates for your needs.
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Our app will include a lot of other information that may help to drive your lending process. For instance, you may discover their contact information that you can use to help set up various appointments. You may also discover their overall location and apply with them in person. The options will vary depending on each lender and give you plenty of unique choices here.
So please don't hesitate to sign up on our unique platform to learn more about how we can help you. When you sign up, you can also contact us and talk with our team to learn more about your mortgage options. We staff high-quality professionals who fully understand this process and who are willing to go above and beyond when helping you identify the best mortgage provider for your needs.
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Get the Mortgage You Deserve
As you can see, it isn't impossible to find a high-quality mortgage with the fair interest rates that you want and deserve. However, it would help if you put in the legwork researching and identifying these lenders and finding those who are willing to work with you. Few lenders want to see you fail: after all, steady monthly payments are their bread and butter and keep them in business for many years.
Don't hesitate to use Goalry to help in this search or work directly with your real estate agent to find potential lenders. These real estate experts typically have years of experience working in this field and understand the different types of options available to you. They'll do what they can to help and ensure that you get the best experience possible for your needs as a person.