When homebuying fever hits, it’s natural to want to rush the process — especially if you have an eye on a specific neighborhood or house.
Particularly when just starting out, many buyers worry about merely being approved for a home loan, never mind shopping multiple lenders. You just want that one preapproval so you can get on with finding the perfect home. But you shouldn’t rush through picking a lender. Settling for the first approval could cost you thousands of dollars in additional fees and interest.
With so many types of mortgage loans out there, a little lender shopping can’t hurt. After all, you’ve already got that first preapproval in your back pocket.
The mortgage-lending landscape
The good news: There are plenty of lenders who want to get in front of potential homebuyers.
Credit unions: These member-owned financial institutions often offer favorable interest rates to shareholders (members). And many have eased membership restrictions, so it’s likely you can find one to join.
Mortgage bankers: They work for a specific financial institution and package loans for consideration by the bank’s underwriters.
Correspondent lenders: Correspondent lenders are often local mortgage loan companies that have the resources to make your loan, but rely instead on a pipeline of other lenders, such as Wells Fargo and Chase, to whom they immediately sell your loan.
Savings and loans: Once the bedrock of home lending, S&Ls are now a bit hard to find. But these smaller financial institutions are often very community-oriented and worth seeking out.
Mutual savings banks: Another type of thrift institution, like a savings and loan, mutual savings banks are locally focused and often competitive.
Insurance companies: Even local auto/life/home insurance agents may offer home loans, though they’re minor players in the scheme of things. State Farm is a good example.
Mortgage brokers and indirect lenders
Mortgage brokers are middlemen who shop your loan package to several lenders on your behalf, for a fee. They may prefer to work with particular lenders and don’t have to offer you the best deal they find, so you probably shouldn’t rely solely on one broker.
Be aware that some brokers don’t call themselves “brokers,” and some financial institutions act as brokers without telling you. That can add another layer of fees to the process. Ask your lender specifically how they’re paid, whichever type you choose.
Find the best lender for you
Finding lenders near you is easy. And, of course, you’ll probably tap into online reviews. Some tips on finding the best lender for you:
Referrals work best. Ask someone you know, or a friend of a friend who has recently bought a house, to share his or her experience — good or bad.
Put the financial institution you currently bank with on your list. After all, they already have your business and want to deepen the relationship; that’s how they hope to keep you a loyal customer. (But don’t automatically go this route without shopping around elsewhere.)
If you are working with a real estate agent, he or she will certainly have suggestions for lenders. After all, they’ve been to a lot of loan closings. Some real estate firms even have their own in-house lenders; just make sure that’s not the only recommendation you get.
And don’t limit your search to just local lenders. For instance, Quicken Loans is the third-largest mortgage lender in the United States. If you want to check out an online lender, the Mortgage Bankers Association provides a searchable list of members on its consumer site.
What to look for in a lender
Naturally, you’ll be looking at interest rates, but right now you want to narrow down your list of players to the finalists. A few questions to help you choose:
Are your calls returned promptly?
Does your primary contact seem to really want your business?
Has the lender provided a complete list of normally incurred fees?
Is the lender willing to waive some fees, such as the credit report or appraisal?
Ask about down payment requirements. If you are seeking to put the lowest possible amount down, you’ll want to work with an FHA-, VA- or USDA-approved lender, depending on your circumstances.
Find out what the typical turnaround times — for preapproval as well as for the time it will take between choosing a house and closing.
You should also ask about experience and even consider asking for references. A simple Google search for reviews will give you an idea of the lender’s reputation with borrowers and show whether there have been any complaints.
Still not sure? You can search for a company on nmlsconsumeraccess.org to see whether it is registered in the state in which you’re buying your home. You can also search the Better Business Bureau for unbiased reviews and information.
Remember, mortgage lenders want your business; in fact, they need your business. Arming yourself with the attitude that you deserve a loan and are looking to find the best lender for you can make all the difference.