Your home is probably the largest purchase you will make — and you will do it with debt.
A mortgage is a loan used to buy property. Because it’s for such a large amount, you want to make sure you’re getting the best mortgage rate and working with a lender that offers the best possible terms.
Before you apply for a mortgage, do a little shopping around to see if you can find a mortgage company that fits your needs and can work with your situation. Here’s how to get a mortgage loan with the right lender for you.
1. Understand your credit situation
Your credit is the most important factor lenders will consider, and some lenders won’t work with you unless you have a certain credit score. Before you start the mortgage process, it helps to know where you stand.
You might discover that you need to work with a mortgage company that accepts alternative credit reporting. Perhaps you need to focus on a lender that offers FHA loans because your credit score is too low for a conventional mortgage.
Be realistic about what to expect based on your credit score, and plan accordingly.
2. Don’t forget community banks and credit unions
Too often, we go right to the “big guys.” However, a lot of community banks and credit unions are willing to work with you. These smaller institutions sometimes service their own mortgage portfolios instead of selling them to bigger banks or investors.
As you shop around for the best mortgage, don’t neglect the local players. You might be surprised at what they can do for you, especially if you have taken the time to build good credit.
3. Look online for a mortgage company
The internet offers unlimited possibilities when it comes to information, products, and services. When I bought my house several years ago, I went through a broker at a local community bank. I was wary of using the internet for such a big transaction.
Today, the internet is a secure place to find a mortgage lender. You can visit an aggregator, share your information, and receive several quotes back. It makes it easy to compare your interest rate options and see other terms.
Even though I was reluctant to use the internet when I bought my home, I changed my tune a few years later when it was time to refinance. My refinance was handled almost entirely over the internet after I found the right solution in an online mortgage.
4. Compare mortgage rates and terms from several companies
You shop around for the best price on a TV. Why wouldn’t you shop around for the best rate on something worth 100 times more than your TV?
Get some quotes for an online mortgage, then bring that information to two or three lenders in your hometown. In some cases, local lenders can meet or even beat what you see online. If you’re interested in more personal service and dealing with large numbers in person, this is a good way to try to get the best terms.
5. Look for a lender that understands your situation
As you compare mortgage companies, find out they have the right options for your situation. If you have a low down payment, for example, you have different needs from someone who can put 20 percent down.
Be upfront about your situation and your challenges. Ask potential lenders questions about your financial situation, and what they can do for you. See how knowledgeable they are about programs specifically designed to help your circumstances, whether you are a first-time homebuyer or someone with an unconventional credit situation.
6. Ask a lot of questions and read the fine print
Take a close look at the mortgage company and what they expect. Find out about any fine print, and ask a lot of questions.
Many of us don’t like to look as though we don’t know what we’re doing. However, if you don’t know what you’re doing as a borrower, it could be extremely costly down the road.
Don’t be embarrassed to ask questions. If someone makes you feel stupid because of what you’re asking, they aren’t the right lender for you. Look for someone patient and willing to explain.
Clarify any terms you don’t understand. Also, find out if the lender requires an “earnest money” payment before starting — and if the lender keeps that money even if the loan doesn’t go through. (Hint: If they are vague about what happens to the earnest money, or if they keep it, consider going elsewhere.)
7. Make sure to compare apples to apples
As you shop around for a mortgage lender, be sure you are comparing apples to apples.
Match up interest rates and other terms, and make sure that your quote for interest rates are on the same types of loans. It’s not uncommon for a newbie to look at a 15-year variable rate from one lender and not realize they are comparing it to a 30-year fixed from another lender.
Be clear about matching up the types of loans available. Go in with some idea of what you want, and take notes. Ask for a print-out of the terms that you can take with you and use in your comparison.
The right mortgage company can make a huge difference in your borrowing experience. Whether you get an online mortgage or go the more traditional route, you want a lender that works for you — and offers you the lowest possible rate.