Finding the right mortgage lender can be one of the most critical decisions in your home-buying journey. After all, the lender you choose will significantly impact your mortgage payments, loan terms, and the overall cost of your home loan. Whether you’re buying a house for the first time, refinancing, or purchasing your next home, knowing how to choose a mortgage lender is essential to securing the best deal.
While conventional loans and government-backed loans are often the most common choices, not all mortgage lenders offer the same options, flexibility, or fees. Here are 10 tips to help you find the right mortgage lender for your needs and how to evaluate the loan options that suit your financial situation.
1. Know the type of loan you need
Before you start looking at mortgage lenders, you must understand what type of loan works best for your home purchase. Different lender types and loan options are available, depending on your personal finances, goals, and whether you’re purchasing your first home or refinancing an existing mortgage loan.
- Conventional loans are most suitable for buyers with strong credit scores who can provide a down payment of 5%–20%.
- Federal Housing Administration (FHA) loans, backed by the federal government, are great for borrowers with lower credit scores or smaller down payments.
- Veterans Affairs (VA) loans are available to qualified veterans and their families, and often don’t require a down payment.
- US Department of Agriculture (USDA) loans are intended for buyers with low to moderate income in rural areas, with agricultural use in the mix.
- Jumbo loans are intended for properties that exceed Fannie Mae and Freddie Mac, as those are tagged with larger down payments and higher interest rates.
Understanding the loan type that fits your needs helps you whittle down your choices and find the best mortgage lenders for your needs.
2. Compare lenders’ loan estimates
A key step in choosing the right mortgage lender is comparing loan estimates from multiple lenders. Each lender will provide a loan estimate that breaks down the costs associated with the mortgage loan, including:
- Interest rates
- Closing costs
- Mortgage insurance
- Lender fees
- Monthly payments
- Total loan amount
Even if you receive an initial mortgage preapproval from one lender, it’s wise to compare lenders before committing to a deal. Some online lenders, credit unions, and traditional financial institutions might offer more competitive rates, lower closing costs, or more favorable loan terms than others.
3. Compare overall costs
While interest rates are often the first thing people look at when choosing a mortgage lender, they are just one piece of the puzzle. The overall cost of your mortgage includes additional fees, such as:
- Closing costs
- Lender fees
- Mortgage insurance premiums
Reading lender reviews and comparing lender fees can give you a better sense of whether a lender offers competitive rates without hidden fees that increase your mortgage payments.
4. Evaluate lender types: Banks vs. credit unions vs. private lenders
When choosing a mortgage lender, you’ll encounter several types of financial institutions.
- Banks typically offer conventional mortgage products but may not be as flexible when it comes to loan options for lower credit scores or unconventional properties.
- Credit unions often offer lower rates and lower closing costs than banks, but their loan programs and service areas can be more limited.
- Private lenders (such as Hopkins Financial) can provide more flexible loan options and faster approvals, particularly when conventional lenders or credit unions cannot approve a borrower due to unique property types or lower credit scores.
Knowing the lender type and the mortgage options they offer can make all the difference in ensuring you get matched with the right lender.
5. Check the lender’s reputation and reviews
When evaluating a potential lender, don’t overlook the value of online reviews. Online lenders, mortgage brokers, and even credit unions will often have customer feedback available on their websites or third-party sites such as Trustpilot or Google Reviews.
Seek out lenders with high customer satisfaction rates, quick loan processing, and helpful, knowledgeable staff. Specifically, read reviews specifically related to:
- Customer service
- Transparency with fees and rates
- Efficiency in the mortgage process
- Closing timelines
A good lender will guide you through the entire loan process, provide detailed information, and be available to answer questions throughout the mortgage application.
6. Consider other types of loan programs
Not every lender offers the same loan programs. Some specialize in facilitating government-backed loans, while others may only be able to offer conventional loans. Before you start the loan application, ask lenders about the types of mortgage loans they offer, including:
- FHA or VA loans
- Conventional loans
- USDA loans
- Jumbo loans
- Portfolio loans (loans that are kept by the lender rather than sold to secondary markets such as Fannie Mae or Freddie Mac)
Some private lenders offer nonqualified mortgage (non-QM) loans, a type of mortgage loan that doesn’t fit the standard QM requirements. This could be a good option if you have unique circumstances such as a lower credit score or unconventional income.
7. Understand lender fees and closing costs
Lender fees and closing costs are often hidden within the loan estimate and can add up quickly. The typical closing costs may include:
- Appraisal fees
- Title search fees
- Mortgage insurance
- Loan origination fees
- Recording fees
Some lenders will offer no-closing-cost mortgages, but these may come with higher interest rates or other costs built into the loan terms.
8. Know your financial situation
Your financial situation directly impacts which mortgage lender is the right fit for you. Consider the following factors:
- Credit score: Minimum credit score requirements vary by loan program, but most lenders will look for a score of at least 620 before approving a conventional loan. If your score is lower, VA loans, FHA loans, or USDA loans might be better options.
- Down payment: Some lenders prefer larger down payments, especially for conventional loans or jumbo loans. Government-subsidized or backed loans may offer lower down payment requirements.
- Debt-to-income (DTI) ratio: Many lenders use this ratio to measure your ability to afford monthly mortgage payments. A high DTI indicates that you may need to pay off existing debt before qualifying for a loan.
Understanding your financial health helps you choose the right mortgage lender and find a loan program that suits your payment requirements.
9. Ask about preapproval and mortgage prequalification
One way to gauge how lenders offer mortgage loans is through the mortgage preapproval and prequalification process.
- Prequalification gives you a ballpark figure of your potential loanable amount based on self-reported income and debts.
- A preapproval process involves a more detailed review of your financial situation, including a credit report, income verification, and bank statements.
10. Compare loan estimates to find the best deal
Once you have narrowed down your options, compare loan estimates from multiple lenders. Pay attention to:
- Interest rates
- Loan terms
- Lender fees
- Mortgage insurance costs
Take the time to ask each lender about loan types, closing costs, and any additional fees that might apply. Comparing the different rates and terms of multiple lenders will ensure that you choose a mortgage with competitive rates and terms that fit your needs. You might even be able to use quotes from one lender to negotiate better rates with another.
Finding the right lender for your needs
Hopkins Financial stands out as a private lender offering flexible loan programs and fast mortgage loan approval, especially when conventional loans or bank loans don’t work for your specific situation.
Contact us today to discuss your home loan options. Our team will guide you through the entire loan process, from mortgage preapproval to securing the best mortgage rate, even if you’ve been turned down by other lenders.
