7-Step Guide to Finding Your Best Mortgage Lender in 2018

TL;DR
Finding the best interest rate requires finding the best lender for your financial situation. Local banks, national banks, online lenders, and more all vary in what they offer. Prioritize researching loan options and interest rates to discover what’s best for you. Locking in a low-interest rate is critical, but your choice of lender hugely impacts your mortgage experience.

This guide will break down the pros and cons of top mortgage lenders. Open Listings can connect you with recommended lenders so you breeze through the research process and secure the money-saving interest rate every homebuyer wants.

The Consumer Financial Protection Bureau (CFPB) reports that nearly half of consumers don’t shop around before selecting their mortgage. Since half a percentage point over your loan term can result in thousands of dollars in interest paid, it’s critical to seek out the best deal despite the noise. Once you know you can get approved, it’s time to decide who you want to borrow with – and who will save you money.

#1 Understand what a mortgage lender is and where to find them

A mortgage lender is a person or company that provides a loan for home purchasing. This entity will determine if you qualify for a loan, then provide a variety of loan options with matching interest rates. Whether a local or national bank, a credit union or non-traditional lender.

Choosing the right mortgage broker can be confusing as there are many different types. We get into this more below.

But, the primary goal is to find the lowest interest rate and the best loan conditions
The difference in savings between 0.5-1.0% interest rate is massive. For example, imagine you're considering a $250,000 loan with a 30-year fixed rate mortgage. A 1% difference in interest rate could cost you an extra $53,466 in interest payments over the course of the loan!

Borrow from someone who understands you, not just your loan
Lending representatives are essentially mortgage salespeople. No financial expertise is required to be a lending agent, so inquire about qualifications and look beyond titles like “Senior Loan Officer.”

A mortgage agent’s job it is to convince you to borrow from them. Find someone whose insightful, straightforward, and offers a competitive rate. You’ll want to choose the best mortgage and the most helpful mortgage expert, not the best salesperson.

Different lenders provide different loans
But all offer government-sponsored loans as well as fixed-rate and adjustable-rate mortgages. Lenders will also review your application, qualify you for a loan, and provide financial advice about the best loan option. If needed, they can offer advice on improving your credit score and ways to secure an accommodating loan interest rate.

To find a lender, compare rates online and stop by your local and national bank branches. These lenders offer their own loan programs, so shop around to compare interest rates.

#2 Evaluate which type of mortgage lender is right for you

magnify money

Between local banks, retail banks, credit unions, and online mortgage lenders – borrowers have more options than ever. When researching which loan options, take notes and stay patient.

Note: Always ask potential lenders for "Good Faith Estimates" and "Truth-In-Lending" statements. These are federally required documents lenders must provide within three days to help you compare total loan costs.

Now let’s look into available lender types.

Local banks

Smaller mortgage lenders often times offer the same array of loans as larger banks but at a lower cost. While you probably won’t get a special customer discount, you’ll still enjoy a more familiar, one-to-one experience with someone who knows you and your financial situation. Local loan underwriters will remain your point of contact throughout the lending process.

Pros:

  • Faster loan approval time because decisions are made in-house. If you’re in a hurry to close, this is very helpful.
  • More accessible lending experience because you’re nearby. Expect individual attention and personalized assistance on qualifying for a great loan rate.
  • Wider selection of fixed or adjustable-rate mortgage options, which vary by bank.
  • Better chance to qualify for a loan, since smaller banks follow different regulatory guidelines. Instead of selling approved loans to mortgage aggregators like Fannie Mae and Freddie Mac, smaller banks keep these mortgages in-house. This allows them to relax their lending guidelines and approve borrowers who don’t qualify elsewhere.

Cons:

  • Often times, fewer loan options due to less administrative resources.

Big banks

National banks have written million of mortgages through the years, so be confident that you’re dealing with a credible institution and getting a competitive interest rate. Such banks include:

  • Bank of America
  • Chase
  • Citi
  • Wells Fargo
  • JP Morgan

Aside from potential interest rate gaps, the biggest trade off between big banks is in service. Instead of one-on-one support, you’ll have access to 1-800 numbers for on nights and weekends. Rather than dropping into a branch to file paperwork, your mortgage application can be processed and your account managed entirely online.

Pros:

  • Additional interest savings may be available because big banks can bundle account services, such as savings, checkings, and financial planning.
  • Varieties of mortgage options are available, however, some specialized loans may be lacking.
  • Offer reliable, industry-standard interest rates with mild flexibility for well-qualified applicants.

Cons:

  • Big banks process many loan applications per week, meaning it can take days to hear back about your application. Given all the moving parts, closing a mortgage with a big bank can take up to 45 days.
  • Don’t approve smaller mortgage amounts or refinancing because of the difference in cost-benefit.
  • Little flexibility for writing loans for applicants with less than great credit

Online

Online mortgage lenders, also termed non-traditional lenders, offer both convenience and lower mortgage rates and fees. Lacking the costs associated with a physical location, these lenders are able to “pass on the savings.” Reputable online lenders include:

  • Quicken Loans / Rocket Mortgage
  • Amerisave
  • Clara
  • Better

While instantly appealing due to their savings, online mortgages lack the in-person support many home buyers crave. However, if you’re savvy and unfazed by fine print, an online mortgage can be a terrific option.

That said, remember to beware of “too-good-to-be-true” offers from dubious online lenders. We’ll discuss how to vet your lenders in a later section.

Pros:

  • Lower interest rates and fees that save thousands over the loan term.
  • Faster application process means you can be approved for a home loan within a day.
  • Ease of approval for applicants with an imperfect credit score or unusual financial circumstances.

Cons:

  • Risk of error is high when filling out forms from home, and application mishaps can be costly or result in a loan denial.
  • Scams featuring low-interest rates and prepayment discounts are prevalent, so be sure to vet any lender before applying.
  • Lack of in-person customer service can be frustrating when faced with application questions.

Credit unions

Credit unions have long offered lower mortgage rates than commercial lenders, but only for highly qualified applicants. More conservative in their lending practices, these institutions also require that applicants meet their membership requirements. Credit unions are able to offer lower mortgage rates because they keep loans in their own portfolio rather than sell them.

Typically, credit unions require you be part of a certain group, for example:

  • U.S. service men and women
  • Church members
  • Homeowners Association (HOA) members
  • School employees or enrollees
  • Live in specific geographic area

Pros:

  • Personalized service
  • Lower interest rates and fees
  • Faster closings than bigger lenders

Cons:

  • Limited availability to borrowers
  • Fewer loan options

#3 Ask friends and family for recommendations to get the best deal

The easiest way to find a great mortgage lender is to solicit referrals from your friends and family. Be specific when asking about who they used and exactly what terms of service they received. If your finances are similar to theirs, you’ll receive similar terms of service. When you meet with referred lenders, cite these conversations and insist upon similar terms.

Finding a lender that listens and is willing to work with you is critical. In competitive markets especially, working cooperatively with a lender ensures you can close on the best houses faster than other buyers. It is the lender who approves any inspections for pest and structural work to keep your deal moving forward. A trusted lender is a huge asset for finding the right home, loan terms and enjoying a seamless home buying experience.

#4 Avoid shiny object syndrome, and don’t let online rates fool you

When comparing mortgage rates online, remember the truism:

If it looks too good to be true, it’s too good to be true.

Shopping around online before approaching lenders is savvy, but beware of online financing itself. Though a convenient alternative to traditional lenders, often the interest rates you see online are only intended to lure you in. These sites are used to generate leads for lenders who contact you following your interest rate quote. With these companies, your lender will be an unknown, so it’s best to use caution.

Regardless of what you see, your interest rate and terms will be determined by your credit score and financial situation. If you’ve had credit issues in the past, and someone offers you 3.5% financing, read the fine print and continue shopping to see if credible lending sources will offer you a similar rate.

#5 Consider a mortgage broker, and if you’d spend to save time

What is a mortgage broker?

Mortgage brokers are middlemen between borrowers and lenders and have access to many lenders. Their goal is to help you find the perfect loan product, then connect you with the loan originator (lender) so you can move forward.

A mortgage broker will ask for:

  • Income statements
  • Asset and employment documentations
  • Credit reports

The broker will then determine the necessary loan amount and ideal loan type before submitting an application to lenders. Paid from an origination fee by the lender at closing, your broker will only be paid if the loan succeeds. Mortgage brokers save you time and energy around reading the fine print and submitting applications.

If you don’t fancy doing mortgage research and don’t mind paying a fee, a mortgage broker can help. According to NerdWallet, the average fee a broker charges is about 1% of the loan amount. For example, if you’re borrowing $400,000, you can expect to pay the broker $4,000.

#6 Scrutinize the reputation and qualifications of potential lenders

Vetting your lenders is a necessary step in the lending process. While you can be sure that big banks are legitimate, safeguard yourself against predatory lending by performing a few of safety checks on any other lender:

Adding this simple process into your mortgage homework guarantees you’re dealing trusted lending sources and risk-free.

#7 Lock in a great interest rate with best practices for borrowers

Average US Home Price by Purchase Month

When it’s time to apply for your loan, arrive prepared to negotiate the best deal. Be ready to leverage competitor’s rates and ask tough questions, as this predicts your receiving the best loan terms. Remember, even a quarter or a half a percent in interest comes out to thousands over a loan.

Here are a few best practices used by savvy borrowers.

  • Compare rates to determine which lenders are offering the best deal on interest rates and closing fees.
  • Use this NerdWallet interest rate tool to get a personalized mortgage quote from lenders.
  • Before meeting with a lender, check their online quote first. Understand the terms of their online offer and compare it in-person, potentially using it as leverage.
  • Beware of peak home buying season because buyers pay increased rates during these times. Recent research found that the best month to buy is October, followed by February, July, December, and January (in that order).
  • Arrive at negotiations educated and be clear that you demand a good rate and excellent service. Ask questions such as:

How long will it take you to communicate and how do you prefer to stay in touch?

 - How fast will you turn around applications for pre-approval, appraisals, and closing?

 - What lenders fees should you expect at closing? 

 - Will you roll these fees into the mortgage or waive them completely?

 - What down payment requirements exist?

 - Where are the Good Faith Estimates (GFE) and Truth-in-Lending (TIL) statements for the loan?

The More Prepared You Are, The Better Loan Experience.

Finding a mortgage lender is more than just finding a great interest rate and loan terms. While a bit of homework can save you hundreds of thousands, you’re also evaluating lenders by the experience they provide. Since lenders steer the approval, appraisal and closing process, a lender that’s aligned with your needs and goals is essential to locking in your perfect home and a great interest rate.

Be exhaustive when researching small and large banks, credit unions and online lenders. Assemble your research before approaching your top mortgage lenders, and be sure to follow up with referrals and trusted lender sources. To source a recommended lender, click here now for a lender facts page that instantly saves you time and energy.

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