Welcome to NerdWallet’s Smart Money podcast, where we answer your real-world money questions.
This week’s episode starts with a new segment we’re calling Buzzwords, where we discuss terms you’ve probably been hearing about in the news and what they mean for your bottom line. To kick off the series, we’re discussing inflation.
Then we pivot to this week’s question from Ravi, who left us a voicemail:
“Hi there. I’ve got a few questions for you. My partner and I are in contract to buy a house. We’re closing in a few weeks, and I’m getting cold feet about the lender we decided to go with.
Our lender is a small company that does wholesale mortgage banking. So far, the process to get financing with our loan officer has been great. But after talking to some friends who are also shopping for houses, I get the feeling we’re making a risky bet by going with this lender instead of a well-known local or national bank. What risks do we open ourselves up to with a smaller, not mainstream lender compared to a well-known local or national bank?
How can one check to see if a lender is reputable? Can I change our mortgage after entering the contract with a lender prior to closing? What happens if our lender goes under? Is there any personal blowback for the decision we made, even though our lender went bankrupt? Thanks.”
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When it comes to inflation, many of the factors leading to rising prices are outside of our control. Prices of many goods and services — particularly used cars, flights and lumber — are higher than they were last year, but the increases are less drastic when compared with 2019 prices. While it’s too early to know whether price increases will level off in the near future, it's smart to control spending where you can. That may mean holding off on buying a used car if you can and finding ways to make everyday expenses like groceries more affordable by using coupons or shopping in bulk.
If you’re shopping for a mortgage and considering a smaller lender, know the benefits and drawbacks of such mortgage companies. You may get more personalized service going with a smaller lender, but they might not have the same amenities that larger, national lenders provide, like 24/7 customer support and a robust online experience. But in general, smaller mortgage lenders aren’t necessarily more risky than other lenders.
Regardless of the type of lender you go with, they’ll generally consider the same factors when putting together your loan: credit score, income and debt obligations. Before applying for a mortgage, put in the work to polish your credit and lower your debt-to-income ratio so you’re eligible for the best rates.
That said, it’s worthwhile to vet any potential lender. Check with the Better Business Bureau and the Consumer Financial Protection Bureau for complaints against any company you’re considering.
Know the different types of mortgage lenders. Each has their own pros and cons, so think about which might be best for your needs.
Small lenders aren’t necessarily risky. They may have fewer loan offerings than larger lenders, but they can give you a more personalized experience.
Vet any potential lender. Before committing to a mortgage lender, check for complaints against them at the Better Business Bureau and the Consumer Financial Protection Bureau.
More about home buying on NerdWallet: