From direct lenders and mortgage brokers to traditional banks and credit unions, today’s consumers have many options for choosing a mortgage lender. The mortgage loan process itself doesn’t differ much in general, but each lender offers its own lending options, terms, fees and services.
Continue reading about the different types of lenders and best practices for choosing the perfect mortgage lender.
What is a mortgage?
Repayment of secured loans depends on two factors: principal and interest. The principal amount refers to the amount of the loan. Interest is the additional amount (calculated as a percentage of the principal amount) that the borrower charges for the privilege of borrowing money that can be repaid over time. During the term of the secured loan, you pay monthly according to an amortization schedule set by the borrower.
Where are mortgage lenders located?
You can find mortgage loans from a variety of lenders. Borrowers can consider everything from online to local banks to mortgage brokers, depending on their situation.
Once a lender accepts your mortgage application, they act as your loan servicer and walk you through the mortgage process. In some cases, the lender may close the loan and then sell it. The buyer (often another company) repays your secured loan.
Mortgage loans are part of the bank’s portfolio, which also offers current accounts, other types of loans and investment services.
You can apply directly or online at the bank, and you will be assigned a loan representative. You may prefer this option if you already have an account with your bank and want personal services at a local bank or a local branch of a larger institution.
There are more than 5,100 federally insured credit unions in the United States, from small lenders to multinational corporations. Like banks, they have many financial products, such as savings and checking accounts, and more than half of the loans they make are mortgages.
To get a mortgage loan from a credit union, you must be a member, which usually means you must have a “joint commitment” with others. For example, you may need to be a family member, live in a certain area, work for a company or government agency affiliated with the credit union, or be retired.
Because of the personal services and member-only transactions, credit unions may be preferable to other options.
Non-bank mortgage lenders.
The number of mortgages originated by non-bank mortgage lenders (including online-only companies) is higher than the other options. These companies specialize only in mortgage loans or may offer several types of loans in addition to mortgage loans.
One advantage of working with one of these lenders is speed. Some of the largest online mortgage companies in the country have created their brands based on fast payday loans. Also, if you have a small defect in your credit history or need a non-traditional loan such as an FHA loan, unbanked borrowers may be more likely to work with you than conventional banks.
If you want someone to research multiple lenders for you and suggest the best lending options, the best way to do that is to work with a mortgage broker. A mortgage broker acts as an intermediary between you and the lender, reviewing offers from a network of lenders, advising on the best loan offers, and then gathering documents and submitting them to the underwriter.
How to Choose a Mortgage Lender
Choosing the best mortgage lender is always important to home buyers. A mortgage lender will help you make the biggest purchase of your life and will be a part of your life for years and sometimes decades to come.
Understand the different types of mortgage lenders.
The type of lender you choose determines the loan offers available, the amount you’ll pay for the loan, and the type of customer service you can get. Comparing stores is a good idea. So, after you learn about the different types of lenders, you can use a list of the best loans to find the best mortgage interest rates, fees and terms before you decide on a loan.
Decide whether to choose an experienced lender or an online lender.
When you are ready to get a mortgage, you will have many options. The most common are local banks, national banks, credit unions and mortgage companies. Depending on your needs, any of them may be the best mortgage lender for you. If you want a very hands-on experience where you can walk into a person’s office and ask questions, a local bank or credit union is right for you. If you want a free online service, some online mortgage lenders offer it. We recommend that you take a closer look at the number of providers in each category and see which providers provide the right terms and services for your life. You can contact local lenders near you using Trulia’s pre-qualification tool.
Compare mortgage loan interest rates.
Shopping around to compare offers from multiple lenders can save you thousands of dollars in the long run. Ask at least three lenders to give you a quote so you have many options to choose from, and use a mortgage calculator to figure out how much you can pay for a mortgage loan.
Determine the type of secured loan you need.
Another important step in the home buying process is to determine the type of loan that is best for you. There are many types of mortgages to choose from, and each loan has different requirements, advantages and disadvantages.
Contact your lender for pre-approval.
Get pre-approved and compare numbers.
Getting pre-approved for a mortgage is pretty formal, but it’s actually part of the comparison shopping process. (To be clear, pre-approval is different from pre-qualification, which you may have done previously. If you have a pre-qualification, you can roughly estimate how many homes you can buy.) Narrow your choices down to the top 3 items and apply for pre-approval for all three. Careful comparison shopping is important because even with an interest rate difference of a few percentage points, you can save thousands of dollars over the life of the loan.
However, contacting three lenders usually lets you know how much you can afford with so many different terms you may qualify for.
Understand the ratio of the annual interest rate to the interest rate.
When comparing mortgage terms, two mortgage terms that are easy to confuse are the APR, the annual percentage rate, and the interest rate. You might think that comparing interest rates on different loans is a fair comparison, but it is not. Low-interest mortgages can incur additional fees and end up being more expensive than high-interest mortgages. APR controls everything. Comparing APRs to other APRs is an accurate comparison.