Before you begin the homebuying process, you probably aren’t thinking much about how to choose a mortgage lender. After all, you have plenty of options.
However, once you’re faced with the decision, things may feel a bit more confusing. How do you find someone you can trust? How do you know you’re getting the best rate?
Fortunately, there is prep work you can do before you choose a mortgage lender to help make the decision simpler.
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Why It’s Important to Do Your Homework
Your mortgage lender is responsible for offering and underwriting your loan.
While they follow certain guidelines to evaluate your ability to repay, they will set terms, interest rates, and payments.
Purchasing a home is a huge financial decision. The differences in fees and rates offered by lenders — even if they’re slight — can mean thousands of dollars.
Comparing offers from lenders is an essential part of the process, but it’s still not the only determining factor.
The right lender can offer you needed support and guidance throughout the process. They will present you with all the options. This way, you will be able to make the most informed and educated loan decision for yourself.
Tips for Choosing the Best Mortgage Lender
Now that you know the role of the lender and what you need from them, let’s dig into the best ways for you to prepare to find the right lender for you.
Understand Your Mortgage Options
Would you benefit from a government-backed mortgage, or do you need lower down payment options? Research on your own mortgage needs and eligibility prior to reaching out to a lender.
Understanding what loans may be available to you can help you ask the right questions to lenders and reveal your full range of options.
Determine What Type of Mortgage You Need
Government-backed and conventional loans each come with their own terms and options, and each lender will structure these options differently.
Before you choose a mortgage lender, it’s important to be aware of these options and how they fit into your unique lifestyle. Common mortgage term lengths are 15, 20, and 30 years, with 30 years being the most popular option.
Your term length will determine your interest rate and monthly payments. As with any mortgage option, the better your credit score is, the more likely your interest rate and monthly payments will be lower.
Each mortgage program will have its own requirements, but your lender will generally want to see the following information to determine eligibility:
- Credit score and history
- Documentation of consistent income
- Employment verification and history
- Debt-to-income (DTI) at or below 50%
Depending on your down payment amount and loan type, you may have to pay for private mortgage insurance (PMI) each month. All of these costs and considerations must be considered with your budget and lifestyle in mind.
While the right lender will be able to offer guidance on which loan is right for you, it’s up to you to first have an idea of what you need prior to approaching your lender. This will guide the right fit.
Get Pre-Approved for a Mortgage
The most accurate way to get your loan details is to get pre-approved for a mortgage by each lender of interest.
With pre-approval, the lender will review your finances and credit after you provide the required documentation.
Each lender will have different application requirements, but you generally will have to provide a driver’s license or ID, social security number, address history, and the following:
- Federal tax returns
- Pay stubs
- Bank statements
- Employment and income history and verification
- List of all financial accounts
- List of all debts
- Legal information, including lawsuits or bankruptcy
- Down payment amount
By gathering this information beforehand, you’ll make it easier on yourself to apply to each lender.
Remember that the lenders also will be pulling your credit history, so if this is an area that needs work, it’s best to work on your credit prior to applying.
You also will need to keep your credit stable after you receive pre-approval so the lender isn’t forced to change their decision prior to full approval and closing.
Doing your research before choosing a mortgage lender will set you up for a successful deal.
You’ll have a stronger understanding of what you need, and will be able to properly communicate your needs with each prospective lender.
Knowing your needs will help you match with the right lender for you, who not only has the best rates but has the experience, reliability, and authenticity to deliver exactly what you need. If you’re ready to move forward, the specialists at River City Mortgage are here to help. Call us today to discuss your loan needs and options.