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5 Tips for Choosing the Right Mortgage Lender

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It’s getting more pricey to buy a house these days. Home affordability reached a low of more than a decade during the fourth quarter of 2018, according to real estate analytics firm ATTOM Data Solutions.

One way to ensure you’re getting an affordable deal on a home is by carefully selecting the best mortgage lender. When you’re buying a home, you want to make sure you’re picking a reputable lender that has your best interests at heart, and offers competitive pricing — here are some tips on how to do that.

5 tips for choosing the right mortgage lender

Here are five tips to follow when you’re trying to decide on a lender for your home purchase.

Get your financial house in order

Be sure you’re a viable borrowing candidate before you apply for a home loan — this will make sure you’ll have options when you’re choosing a mortgage lender.

Check your credit score and review your credit reports from the three major bureaus: Equifax, Experian and TransUnion. Skim your reports for any blemishes that could impact your mortgage eligibility, dispute any errors you see and maintain positive habits, like consistently paying bills on time and keeping your credit usage low.

Conventional mortgage lenders generally want to see a minimum credit score of 620, and some lenders may require at least a 640 score. For your debt-to-income (DTI) ratios, aim for 30% or lower on the front end (housing expense only) and no more than 43% on the back end (all debt expenses). It’s possible to qualify for a mortgage with up to a 50% back-end DTI ratio, but in those cases lenders will often expect a credit score above 700.

Ask for recommendations

A good place to start your mortgage lender search is to reach out to loved ones for recommendations.

“Get referrals from friends, neighbors, coworkers, family members,” said Pava Leyrer, chief operating officer at Northern Mortgage Services in Grandville, Mich. “Usually they’ll tell you very quickly who did a wonderful job for them and who didn’t.”

Take things a step further by doing some homework on the lenders mentioned. Look up reputable reviews and watch out for any red flags that may come up.

“I would do a little bit of research just to make sure that (the lender) is someone that you feel comfortable with, more like a trusted advisor or consultant than just some place to go get money,” Leyrer added.

Ask questions

Once you have a few lenders in mind, reach out and ask questions to get a better understanding of the products they offer for homebuyers and how they operate during the underwriting process.

Leyrer suggested sharing your preferred monthly mortgage payment — including taxes and insurance — right away with each lender you speak with, and being cautious of lenders who try to get you to go for a higher amount.

“Pushing you to the top, maximum limits that you qualify for is usually, in my opinion, a mistake a borrower makes right away,” Leyrer said.

Because borrowers can get excited and let emotion take over, they sometimes disregard the other expenses that come along with homeownership.

Leyrer also offered some potential questions to ask:

  • Do you specialize in working with first-time homebuyers?
  • What programs do you have for buyers with a small down payment?
  • What are your mortgage qualification guidelines?
  • Can documents be delivered electronically?

Be sure you’re also upfront about your credit history. Share whether you have a bankruptcy, foreclosure or other items from your past that have affected your creditworthiness, Leyrer added.

Get mortgage preapproval

If you’re ready to move forward in the homebuying process, one of the most important actions to take is getting a mortgage preapproval from each lender you’re evaluating.

You’ll need to supply several documents, such as bank statements, pay stubs and W-2s, as well as give permission for each lender to pull your credit reports and scores. They will use this info to determine your debt-to-income ratios and your capacity to afford a mortgage.

If you’re granted a preapproval, you’ll receive a letter from each lender stating the estimated loan amount you’re preapproved to borrow and your estimated mortgage interest rate. Having a preapproval means you’ll be taken more seriously as a homebuyer when it’s time to put in offers.

However, keep in mind a preapproval is not a guarantee that you’ll be lended the money; it is still conditional.

Compare mortgage quotes

Once you apply for a mortgage, lenders have three business days to send you a Loan Estimate, which provides estimates for your monthly payment, interest rate, taxes, insurance and other borrowing costs.

You’ll want to review Loan Estimates from at least two or three mortgage lenders to get an apples-to-apples comparison of how much it could cost you to move forward.

Shopping around saves money. At time of publication, homebuyers could see nearly $29,000 in interest savings on a $300,000 loan over a 30-year term by comparison shopping, according to LendingTree’s latest Mortgage Rate Competition Index.

The bottom line

Choosing the right mortgage lender is imperative to getting the best deal for your home purchase. There are several costs related to buying a home, so it pays to review multiple quotes from lenders before deciding to just pick the first lender you come in contact with.

Leyrer suggested keeping a close watch on how consistent your prospective lenders are in corresponding with you and factoring that info into your decision.

Get the process started by gathering free mortgage quotes from lenders and learning more about the minimum mortgage requirements for 2019.

 

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