How Do I Find A Good Mortgage Lender? Who Are The People Involved In Making The Loan?
If you made a decision to look for a home to purchase, the next step is to find a lender to provide you with a mortgage if you don’t have the cash on hand to cover it.
There are no shortage of lenders, banks, mortgage brokers, and other entities that are happy to take on your loan application. However, you may be asking yourself,” How do I find a good mortgage lender?”
Let’s take a look at which types of lenders are available to you should know about choosing the right lender to get the best mortgage you deserve.
What are the Types of Lenders Available?
To start, there are a number of different lenders that can help you get a mortgage for a property. Some of the most common include:
- Direct lenders
- Mortgage brokers
- Portfolio lenders
- Government lenders
- Hard-money lenders
Direct lenders are banks, credit unions, online entities and other firms that provide mortgages to consumers without a middleman. Most of the loan origination process is handled in-house, so approval is quicker than other sources of funding from other lending sources.
Mortgage brokers are independent, licensed professionals who help match lenders and borrowers. In exchange for their services, brokers receive a commission from the loan (usually 1 - 2% from the lender or the borrower). Mortgage brokers don’t fund the loans (like direct lenders), but they can be invaluable when shopping around for lenders.
Portfolio lenders are entities that originate and fund loans from their clients’ bank deposits. This is done so a portfolio lender can hold on to the loans and not resell them after closing to the secondary loan market. These lenders - which include credit unions, community banks, and savings & loans institutions - typically are more lenient in their terms and conditions, often looking past credit blemishes and may provide funding where direct lenders won’t.
If you are having trouble finding a lender through conventional lenders, you may want to seek out government lenders. The federal government sponsors a number of loans that are designed to help out individuals that may have trouble finding loans elsewhere. The two most popular government loans are the FHA loan and the VA loan (Federal Housing Administration and Department of Veterans Affairs, respectively). These loans come with low interest rates and require a smaller upfront down payment to secure - often requiring as little as 3.5% (and in some cases, no money down).
Hard-money lenders are private investors (individuals or a group of investors) who provide short-term loans secured by real estate. In contrast to other lenders, hard-money lenders choose to invest in clients based more on the value of a property than a borrower’s ability to repay the loan. This lending strategy often requires a shorter time frame for repayment (between one to five years), steeper loan origination fees, higher interest rates, and other fees that are not seen in other types of real estate lending. However, if you are hard-up to find a loan and believe you can repay it in a short amount of time, this may be a viable option.
Finding the Best Mortgage Lender
The process of finding the best mortgage lender requires research. You’ll need to shop around different sources and get as much information as you can. Be sure to explore banks, online lenders, local credit unions, and local business groups (for hard-money lenders).
Ask each lender about the following points to compare one from another:
- Interest rates
- Down payment requirements
- Loan terms
- Property insurance requirements
- Closing costs
- All associated fees
After reviewing the data, one thing you’ll notice is how much each program varies. Some may charge lower interest rates, but may have exceedingly high closing costs that make investing your money cost-prohibitive. There may not be a perfect lender, but you can choose one that fits your income levels and expectations for the future.
Also, there’s no better way to find a good loan than by asking friends and family members about their home mortgage. Having first-hand experience can be invaluable, where you can learn about terms and conditions that may have caused problems, how the customer service was with the company, and many other aspects.