How To Choose A Mortgage Lender

You have decided  you are ready to purchase a home, or refinance your current home. The next step is finding the right mortgage lender. The next step is finding the right mortgage lender and you need to know how to choose a mortgage lender from the many mortgage lenders available and to avoid the many pitfalls many borrowers fall into. With so many choices out there, it can be difficult to decide who to go with. You are taking the right step by reading this article, to determine what you need to know, what you need to look out for, what questions you need to ask,  and what offers you need to be aware of. We assume you are following a structured process that looks like this:

1. Strengthen your credit
2. Determining your budget
3. Know your mortgage options
4. Choosing a lender by comparing offers (rates, terms, etc) from multiple lenders
5. Getting preapproved for a mortgage
6. Read the fine print

You may already be aware of many of the moving parts required to make your decision, so please feel free to jump to the section most important to you. We are going to examine the following:

• Types of mortgages categorized by mortgage rate type
• Types of mortgages categorized by issuer / insurer
• Types of mortgage lenders
• Determining factors for comparing mortgage lenders
• Questions to ask a mortgage lender during your investigation/research

Sometimes you may find the many details around mortgages overwhelming. Taking a mortgage is a life-changing decision and definitely deserves very diligent effort. A wrong decision  could cost you dearly both in dollars and emotionally.

Types of Mortgages Categorized By Type of Mortgage Rate

Before finding the right mortgage lender, you should decide on what type of mortgage rate you are looking for. The type of mortgage rate is crucial because it  will have a direct impact on your monthly mortgage payments. There are four common types of mortgage rates:

Fixed-Rate Mortgage

With a fixed-rate mortgage, your interest rate will stay the same for the entire length of your loan term. This type of loan provides stability since your monthly payment will never change, no matter how much market rates fluctuate. If you know you can afford the same house payment every month for several years, a fixed-rate mortgage may be right for you. Why will everyone not go for a fixed rate mortgage?  Because the interest rate is higher than an adjustable-rate mortgage (ARM). Then why should I ever choose a higher fixed-rate mortgage? The advantage  of a fixed-rate mortgage is that you’ll always know exactly how much your monthly principal and interest payment will be, so you can plan accordingly. You’ll never have to worry about your payment going up if market rates rise, which gives you peace of mind.

Adjustable-Rate Mortgage (ARM)

With an adjustable-rate mortgage (ARM), your interest rate could go up or down over time, depending on changes in the market. ARMs typically start with a lower interest rate than fixed-rate mortgages, but after an initial period, they can adjust upward or downward to keep pace with the market. If you’re comfortable with some degree of uncertainty in your monthly payment, an ARM may be a good option for  you. Many people choose ARMs because they initially have lower monthly payments than fixed-rate mortgages. While there is a potential benefit of enjoying lower rates for a period of time, it comes with the risk that your payments could go up in the future.

Hybrid Mortgage

A hybrid mortgage is a cross between a fixed-rate and an adjustable-rate loan. You can choose a hybrid loan with an initial fixed rate that is lower than a comparable fixed-rate loan. After a set number of years, the interest rate will adjust and may end up being higher than a comparable ARM.

Types of Mortgages Categorized By Issuer And Insurer

Mortgages can also be categorized by who issues the loan. The three main types of issuers are the government, banks, and mortgage companies. Government-issued loans are either insured or backed by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the Department of Agriculture (USDA). They tend to have more relaxed requirements than loans issued by banks or mortgage companies.

• Government-Insured Federal Housing Administration (FHA) Loans
• Government-Insured Veterans Affairs (VA) Loans
• Government-Insured U.S. Department of Agriculture (USDA) Loans

Bank-issued loans are not backed by any government agency. They tend to have stricter requirements in terms of credit score and down payment. Mortgage companies are a type of lender that emerged during the subprime mortgage crisis to provide loans to borrowers with less than perfect credit. Some mortgage companies only deal with high-risk borrowers, while others work with a range of clients.

• Banks
• Mortgage companies

The mortgage loan originator is the first person you speak with when seeking a mortgage. The Maine Bureau of Consumer Credit Protection (BCCP) is responsible for ensuring that all mortgage loan originators in the state are licensed and follow all state and federal laws. You can check to see if your loan officer is licensed by visiting the NMLS Consumer Access Website.

Types of Mortgage Lenders

Now we have examined the various categorizations of mortgages, let us review the various types of mortgage lenders and the key differentiating factors  between them.

Conventional Banks – Local and National Banks

These are banks such as  Wells Fargo, Chase, and Bank of America. They offer mortgage  products to their customers and are worth considering if you have a good relationship with your bank.

Nonbank Mortgage Lenders also known as Direct lenders

These refer to a financial institution that originates and funds a loan all within its own company.  They’re not set up like banks, which have deposits and shareholders. A Nonbank mortgage lender will likely have different guidelines for approving loans than  a bank.

Private Mortgage Lenders

These are individuals or companies that lend money to people who may not qualify for a loan from a traditional lender. Are they the same as hard money lenders? No, but the line between the two can get blurry because they’re both considered “alternative” financing.

Hard Money Lenders

These are  companies that lend money to people for the purpose of investing in real estate. Hard money loans are based on the value of the property being purchased, not the borrower’s credit worthiness. They are typically used by investors to purchase properties that need to be fixed up and sold quickly.

Mortgage Brokers

Mortgage brokers are  independent third-party loan originators that differ from  banks and direct lenders in the sense that  they don’t have the authority to fund loans on their own but  instead rely on other financial institutions to do so. They are nevertheless categorized as mortgage lenders in the sense that  they are the ones  who first assess a borrower’s eligibility for a loan and then find a suitable lender to fund it.

Portfolio Lenders

These are companies that hold on to your loan instead of selling it in the secondary market. They  tend to be more flexible with their lending criteria and are more willing to work with borrowers who may not fit the mold of a “traditional” borrower. However, they also typically have higher interest rates and fees.

Credit Unions

Credit unions are  not-for-profit organizations that are owned by their members. They usually have more relaxed eligibility requirements and offer lower interest rates than banks, but they  also typically have fewer branches and ATMs.

Correspondent Lenders

Correspondent lenders are  third-party companies that originate and fund loans on behalf of other lenders. They  act as a middleman between  you and the lender, and they  typically have less stringent lending criteria than banks or credit unions. These differ from  mortgage brokers in that they actually fund the loan themselves.

Wholesale Lenders

Wholesale lenders are companies that originate and fund loans but sell them to other lenders, rather than funding them themselves. They typically have  less  stringent lending criteria than banks or credit unions but may offer  lower rates.

Mortgage Marketplaces

Mortgage marketplaces are online platforms that connect borrowers with a variety of lenders. These  can be a good option if you want to compare  rates from multiple lenders  all in one place.

Factors To Consider In Selecting a Mortgage Lender

Once you’ve decided on the type of mortgage you want, it’s time to start shopping around for a lender. Start by getting recommendations from friends or family members who have recently bought a home. You can also check with your local bank or credit union, or look online for lenders that specialize in the type of mortgage you’re interested in.

When you’ve found a few potential lenders, compare their offers. This is where it is important to know the bases of comparison. In summary, you want to compare offers in terms of interest rate, fees, and customer service. In the next section, we will also provide a bank of questions to ask when discussion with a mortgage lender.

Check Out Current Mortgage Rates

This is arguably the most important  factor in choosing a mortgage lender. The interest rates will have a direct impact on how much you end up paying for your home, so it’s important to get the best rate possible.

When comparing mortgage interest rates, be sure to look at the Annual Percentage Rate (APR). The APR reflects the true cost of borrowing, taking into account not only the interest rate but also any points, fees, or other charges that you may be required to pay.

Be aware that mortgage rates can change daily, so what you see today may not be available tomorrow. If you’re interested in a particular lender, lock in your rate as soon as possible to avoid missing out on a great deal.

We have an extensive article on mortgage rates in Maine which includes the rate trends provided by Zillow.

Required Down Payment for Mortgage Loan

Another important consideration in selecting from a set of mortgage lenders under consideration is  the required down payment. Lenders typically offer both fixed-rate and adjustable-rate mortgages (ARMs) with a variety of down payment options. Some lenders may require as little as 3% down, while others may require 10% or more.

If you’re a first-time homebuyer, you may be eligible for special programs that allow for a lower down payment. Be sure to ask your lender about any programs that could help you save on your down payment.

Private Mortgage Insurance

If you’re unable to make a 20% down payment on your home, you’ll likely be required to pay private mortgage insurance (PMI). This is an added expense that will increase your monthly payments, but it can help you qualify for a loan if you wouldn’t otherwise be able to do so.

You can typically avoid paying PMI by making a 20% down payment on your home. If you’re unable to do this, some lenders offer “low-down payment” options that allow you to make a smaller down payment while still avoiding PMI.

Application Fees

In addition to the interest rate, you’ll also want to ask about any fees or points that will be charged. Points are a one-time fee paid at closing in order to lower your interest rate. One point equals 1% of your loan amount.

Be sure to compare the cost of taking out a loan with points versus one without points. In some cases, it may make sense to pay points in order to get a lower interest rate and save money over the life of the loan.

There are a few other possible fees to watch out for.

• Origination and processing fees, charged by the lender to cover the cost of processing your loan application
• Underwriting fee, charged by the lender  to cover the cost of having your loan application reviewed by an underwriter
• Documentation fee, charged by the lender to cover the cost of preparing your loan documents
• Appraisal fee, charged by the lender to cover the cost of having your home appraised
• Credit report fee, charged by the lender to cover the cost of pulling your credit report
• Homeowners insurance, sometimes required by the lender and typically paid at closing
• Private mortgage insurance (PMI), typically required if you’re making a down payment of less than 20% of the home’s purchase price
• Taxes and government fees, such as recording fees and transfer taxes
• Miscellaneous fees, such as administrative fees, email fees,  wire transfer fees, etc.
• Pest inspection fee, charged by the lender to cover the cost of having a pest inspection

You can always ask the lender to waive or reduce any of these fees, especially if you’re a low-risk borrower with a strong credit score.

Flexibility In Loan Terms

Some lenders offer adjustable-rate mortgages (ARMs) that allow you to choose the length of the loan term and how often your interest rate will adjust. Others might let you make interest-only payments for a period of time, which can lower your monthly payment if you’re trying to qualify for a loan with tight limits on debt-to-income ratios. 

Some lenders will allow a renegotiation of the loan terms through a refinance after a period of time has passed, so if you’re not happy with the rates you’re paying or the length of the loan, you can shop around for a better deal. Prepayment penalties also vary from lender to lender, so be sure to ask about them before signing on the dotted line.

Processing Time

Depending on how quickly you want your loan disbursed, the processing time each lender offers could be a key selection criterion.  Some lenders can turn around a loan in as little as 10 days while others may take up to 60 days. If you’re in a hurry to get your loan, be sure to ask the lender about their processing timeframe.

Customer Service

You will stay with the mortgage lender and loan repayment for a long time, so it’s important that you’re comfortable with the company and their customer service.  Ask around for recommendations or read reviews online to get an idea of how satisfied other customers have been.

It’s also a good idea to visit the lender in person and talk to them directly about your concerns. This will give you a good sense of whether or not they are truly committed to helping you through the process.

Lender’s Licensing and Registration Status

The licensing and registration status of the mortgage lenders being evaluated is  important to consider.  You can check with your state’s banking commission or department of financial regulation to find out if the lender is licensed in your state.

The best way to check a lender’s licensing and registration status is through the Nationwide Mortgage Licensing System (NMLS). The NMLS is a national database of licensed mortgage lenders. You can use the NMLS Consumer Access website to search for lenders by name, location, or license number.  The website will also tell you if there have been any disciplinary actions against the lender.

If a lender is not licensed or registered, it may be a sign that the lender is not reputable. You may have trouble getting your loan approved, or you may not get the best terms and conditions on your loan. It’s always best to work with a licensed mortgage lender, even if it means paying a higher interest rate. A licensed lender will be subject to state and federal regulations. This gives you some protection if something goes wrong with your loan.

Use Our Mortgage Calculator!

It may become complicated and overwhelming comparing rates, factoring in applicable fees,  and considering the long-term implications of making the wrong choice.

Our mortgage calculator is a quick and easy way to compare different lender options and find the right one for you. Simply input your loan details including loan amount, term, interest rate, and any fees associated with the loan, and the calculator will show you what your monthly payments would be. 

You can also use the mortgage calculator to compare different loan scenarios side-by-side. For example, you can see what your monthly payments would be if you increased or decreased your loan amount, changed your interest rate, or extended or shortened your loan term. This can be a helpful way to see the implications of making small changes to your loan details and can help you compare different lenders’ offers.

You can also feel our loan qualifier and get us to provide you guidance right from the start.

Mortgage Lender Selection: Key Questions to Ask

From our experience, we know how useful it is to have a handy list of important questions to ask during review of potential mortgage lenders. Please see a good list below.

• What types of mortgage loans do you offer? Which do you recommend for me based on my own situation and needs?
• What are the applicable interest rates and APR? Can I lock this rate, for how long and what are the terms to extend this lock??
• How much down payment do you require of me for the property purchase?
• Will you take me through preapproval or prequalification?
• What will all the applicable fees and payments be? What will closing costs be?
• How long do you expect the loan application process to take until disbursement?
• Who will be my primary contact throughout the process and should I expect to have to deal with anyone else like during underwriting? What means do you accept to keep in touch?
• Is any prepayment penalty associated with your loan offers?
• What are your required credit qualifications and will you consider me if I do not meet them?
• Do I need an escrow account?
• Are there minimum income requirements to get approved?
• Is it possible to buy a house without my partner involved?

If you’re working with a mortgage broker, you should ask these two questions:

• How many mortgage lender offers did you review and on what basis did you select this lender from the several mortgage lenders considered?
• Why was this lender’s rate considered as the best? Do you have any affiliations with the mortgage company you have chosen?
• What are the applicable fees and commissions and who will pay for them?

Frequently Asked Questions

How do I choose who to get a mortgage from?

The answer to this question is what this entire article has been written to address. You should now have a good idea of what to look for in a mortgage lender, and how to go about finding one that meets your needs. Just remember to ask plenty of questions before making your final decision.

When you’re ready to start working with a lender, Acadia Lending Group is here to help. We are a team of experienced mortgage professionals who are committed to helping our clients find the right home loan for their unique situation. Contact us today to learn more about our services, or apply online now to get started.

Is it better to get a mortgage with a bank or other lenders?

There are benefits and drawbacks to both options, so it really depends on your individual circumstances. If you have a good relationship with your bank, they may offer you more favorable terms than another lender. On the other hand, if you’re looking for the lowest interest rate possible, working with an independent mortgage broker like Acadia Lending Group may be a better option. Ultimately, the best decision is the one that’s best for you and your family.

Does choosing a lender matter?

Choosing the right mortgage lender is one of the most important steps in the homebuying process. A bad lender can cost you thousands of dollars over the life of your loan, so it’s important to do your research and choose carefully. Apart from the financial impact of making the wrong choice, other pitfalls we have seen homebuyers face when they choose the wrong lender include:

• Being given outdated or inaccurate information
• Poor customer service
• Hidden fees and charges
• Rigid terms and conditions
• Pressure to sign up for products and services not needed
• Lack of transparency

Summing Up

Making a choice of a mortgage lender is not always easy. There are many things that you need to consider before making a decision. In this article, we have discussed some important factors that you should take into account when choosing a mortgage lender. We hope that this information will be helpful for you and will make your choice easier. We are Acadia Lending Group, and would be delighted to walk you through this process.