Tips For Choosing The Best Mortgage Lender
Choosing a lender is one of the most important things you will do when buying a home. There is a lot to consider when approaching a lender, and the process can be complicated for even the experienced.
If you haven’t, read our last post about demystifying mortgage myths. I will be referencing it a couple of times throughout this post, and both articles will tell you exactly what you should know, what you should ask, and what to watch out for when shopping for a lender.
If you are a first-time home buyer, you will come away confident and ready to tackle the mortgage process. If you are an experienced investor, I hope I was able to provide you with one or two things you didn’t already know. But no matter what, I hope the big takeaway for everyone is that knowledge will help illuminate and demystify a complex and tricky process.
Find a mortgage broker
Mortgage brokers are not the same as mortgage lenders. Brokers will connect lenders with buyers, and oftentimes will get you a better lender than you could find on your own.
Brokers should have a vast network of lenders and access to a wide range of loan options. Their expertise and network can be well worth the fee they charge. But, with anything, it is important to do your due diligence. If you have already shopped around and have an idea of the terms you will be getting, a good broker will tell you if their services will be worth it or not (do not count on this, though). Read online reviews, talk to people that you trust, visit forums, and shop around for brokers just like you would with lenders.
Look for other fees and costs
While the interest rate is the “main attraction,” do not forget about other fees and costs you might be subject too. Getting a sense of these will allow you to better compare lenders, and possibly give you some negotiation wiggle room. Possible and usual fees are:
Origination fee
Private mortgage insurance (not applicable if you are putting 20% or more down on a home)
Appraisal fee
These next four fees are the most common categories for junk or garbage fees. Not that they are inherently junk fees though, many respectable and affordable lenders charge these, but if you notice these fees are unusually high it will be worth bringing it up with the lender.
Processing fee
Application fee
Underwriting fee
Mortgage rate lock fee
It never hurts to ask if a fee can be waived or reduced, but it is important to note that negotiating fees down will often result in a higher rate. At the end of the day, you need to be prepared to walk away. You do not owe any lender your business and there are plenty of fish in the sea.
Get recommendations, shop around
If you know any savvy real estate investors, ask them about their experiences with different lenders. Ask your friends who recently purchased a home how the process went for them. Additionally, make sure that you:
Do not let lenders pressure you with sales tactics.
Listen to your gut about how the interaction made you feel (in addition to the cold calculation and comparison of facts and figures)
Talk to many lenders – this will give you confidence and give you a sense of the playing field.
Remember from our previous post that you have a 45 day window where all credit pulls from lenders will only count as one “ding” to your credit score. Take advantage of this and shop around: volume is your friend when it comes to finding a lender. Remember, there are plenty of lenders out there and you get to choose who you do business with.
Finally, ask Doorvest. We have lenders that we partnered with and we can provide recommendations. These are lenders we like just based on past experiences with our investors. We do not receive kickbacks or commissions from these lenders.
Prequalification vs Preapproval
The differences between prequalification and preapproval have been covered in our last post, so I will not go into too much depth here. In short, preapproval is harder to get and involves the same rigor as actually obtaining a mortgage. Preapproval is what you want to show sellers you are serious and qualified, and getting preapproved will mean less work for you down the road.
A preapproval typically lasts 60-90 days. Ask your lender what your window of time will be, and make sure you ask if the time can be extended. Many lenders offer an extension after reverifying any updated information. Ask if there are any associated fees with extension and ask what information will need to be provided.
Preapproved locked-in rate
I will also refer you back to our last post for a more in-depth discussion on locked-in rates. What you should find out from lenders is:
What is the locked-in deposit? (typically ~0.25% of loan value)
Is the deposit refundable?
Does the lender allow a float down? And if so, how many? (a float down is when the lender reduces your locked-in rate if rates decrease. Lenders often allow a one time float down)
Know your credit score
If your credit score is not great, it may be worth postponing your purchase until you do some damage control. Good credit practices will substantially increase your score after a couple of years, but reducing your credit utilization is one way to increase your score immediately. Credit utilization is the percentage of your available credit that you’re using (balance divided by credit limit).
How Doorvest can help
The mortgage process can be tricky. With everything that is complex in life, it is smart to be as prepared as possible. This will help you avoid mistakes, choose the best lender, and ensure a smooth funding process.
With Doorvest, you do not have to do it alone. Our experienced team can walk you through the lending process, work with your lender, and provide recommendations. We can give you an apples-to-apples comparison, so you get peace of mind from knowing you got the best deal.