How to Choose the Mortgage Lender that’s Right for you!
Simplify Home Loans, LLC
Simplify Home Loans, LLC UT
Published on October 11, 2022

How to Choose the Mortgage Lender that’s Right for you!

Just like the houses you are searching for, mortgage lenders come in all shapes, sizes, and cost ranges. Choosing the right lender for you and your situation is very important in the loan process. You’ll need to understand things like the different types of lending institutions and networks, how to find the right one, and of course, which is the right one for you.

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Types of Mortgage Lenders

Direct mortgage lenders are lending institutions that provide mortgage loans to borrowers without any intermediaries. The most common example of a direct lender is a bank. Some benefits of working with direct lenders include:

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  • No extra costs are charged by intermediaries.
  • Typically the loan processing is done in-house and can be less expensive.
  • The process can be faster, especially if the direct lender has the above-mentioned in-house underwriting.
  • Typically, you communicate with a single point of contact (loan officer).
  • Direct lenders are highly regulated, reducing the risk of fraud or other predatory lending practices.

Direct lenders, just like any other loan source, have drawbacks as well, including:

  • If you go to multiple banks, you will need to apply each time vs. one application to several places.
  • Depending on the direct lender you choose, they may not have access to the type of loan you are hoping to qualify for.
  • Banks add what are called overlays in their lending process. This means there are minimal requirements to qualify, and then they put additional requirements on top of those same requirements.

Mortgage Brokers

A mortgage broker is not a lender but an intermediary connecting borrowers with mortgage lenders. Mortgage brokers collect all the information needed for a preapproval from a borrower, including income, credit score, etc. Then they package it up and go to their network of lenders, saying ok who is going to give me the best deal for this loan? During the course of your loan transaction, from application through preapproval to the final loan closing, the mortgage broker will communicate back on your behalf with the lender. Some of the benefits of using a mortgage broker include:

  • They can present you with multiple loan options without you having to contact each lender individually.
  • You can often secure a better interest rate by using a mortgage broker.
  • Mortgage brokers handle the paperwork needed and guide you through the loan process.
  • They can save you time by doing the loan shopping for you.

Nonbank Mortgage Lenders

There are other direct lenders, the most common being credit unions. Unlike banks, credit unions are not-for-profit organizations. This means that their key mission is to take care of their members vs trying to make as much profit as they can. This not-for-profit structure usually passes on more savings to its members compared to traditional banks. These savings are typically lower interest rates. Let’s take a look at why you might want to use a credit union to secure a mortgage loan.

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  • Fee flexibility
  • Personal member customer service
  • Lower interest rates
  • Other services in one place like checking accounts, car loans, and more

A big drawback to using a credit union is its membership exclusivity. Many times, they only cater to a certain subset of the population. For example, some credit unions only service military members and their families. Keep in mind that credit unions are just one type of nonbank lender. There are several others, including online lenders.

Tips For Choosing A Mortgage Lender

Now that you know a little bit about the different types of lenders and places you can find them, let’s explore the best way to choose a mortgage loan. When you are ready to start the home-buying process, start by thinking about which loan type you’ll need. 

 

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Evaluate Mortgage Lenders By Loan Type

Not all mortgage lenders offer the same types of home loans. Many actually specialize in certain loan types as well, so choosing the right lender can be very important. Let’s take a look at a few common types of mortgages that might fit your needs. 

  • Conventional loan: A conventional loan is a mortgage offered through a private lender without backing from a government agency. Conventional loans can be used to finance the purchase of a new home or to refinance an existing mortgage.
  • FHA loan: An FHA loan is issued by private lenders but backed by the Federal Housing Administration (FHA). This means the government will protect the lender’s investment against default, which can make qualifying easier because there is less risk for the lender. 
  • VA loan: VA loans are mortgages specifically for veterans, active service members, and eligible spouses and are backed by the U.S. Department of Veterans Affairs (VA). Though these home loans are insured by the VA, the loans themselves are issued by private lenders. 
  • USDA loan: A USDA loan is a mortgage loan that helps low- to moderate-income families purchase a home in an eligible rural area. The loan is backed by the USDA, which allows lenders to offer lower rates and no down payment. 

Questions To Ask Your Mortgage Lender

When evaluating your mortgage lender options, it’s important to ask questions throughout the process to get an idea of where you are in the process. It’s also important to stay informed, so you actually know what is going on. Here are some common questions to ask your mortgage lender.

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  • How Long Does The Mortgage Process Take?

  • What Are The Different Fees Included In My Loan?

  • Do You Offer A Mortgage Rate Lock?

  • Are There Loan Prepayment Penalties?

  • Would You Recommend A Specific Loan Program?

 

Conclusion

Choosing a mortgage lender is often very exciting because it means you are about to purchase a home! Living the American dream.  As you begin choosing a mortgage lender, remember to  do your research, ask lots of questions, and consider your options carefully before moving forward with a lender. This is a process that can honestly make or break your loan. Are you ready to get started on a mortgage loan? Give us a call today!

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Simplify Home Loans, LLC UT
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