Buying a home is probably the biggest financial purchase you will make in your lifetime — one you will be paying off for years to come. When you are calculating the details of your mortgage, or refinance, picking a lender can be one of the most complicated (but important) decisions in the process. Today, there are likely many mortgage lenders eager and ready to accept your application, but it's important to search for the right deal to satisfy your needs. You can save thousands of dollars just by doing some extra research, planning and following these tips to pick the right mortgage lender.
Decide What Kind of Lender You Want
Check into how small and large lenders work and decide if you strongly prefer one over the other. You can look at different types of lenders, from a mortgage company to a credit union or a commercial bank. (But remember, you are looking primarily at the lender that will originate your mortgage; mortgages are commonly sold to a third party after the lender originates them.)
You can compare mortgage rates online, by calling or going into lenders' offices in person. Once you have several quotes in hand, compare not only the cost but also what each source offers (closing fees, for example) and figure out what makes the most financial and personal sense for you. If your preferred lender and best quote don't match, you can use this as leverage. You can also check with potential lenders if you can pay points to lower your rate. Keep in mind that rates can possibly change while you shop around and will be contingent on other underwriting standards as well.
Talk to Your Agent & Adviser
It's a good idea to ask your real estate agent and financial adviser for recommendations on lenders. This can also be a good time to discuss with your financial adviser where you plan to get the money from for your upfront costs. You should also consider your credit score (you can get a free credit report summary, which includes two credit scores, updated monthly, from Credit.com) and get it in the best possible shape before the application process begins.
It's a good idea to get referrals from your friends, family and websites about which lenders have worked (or not worked) for them. Beyond that initial reputation check, you need to do a background check on your top contenders through reviews as well as the Better Business Bureau. If you want to be extra-thorough, contact the lenders and got through any other questions you might have regarding closing hurdles, credit standards, etc.
Read the Fine Print
Get to know the details of your mortgage. This includes not just the interest rate and down payment but estimated closing costs, points, loan origination fees, transaction fees and any other costs you may incur. (You will get a Good Faith Estimate from the lender.) Don't be afraid to get clarification. Ask what each fee includes and ask the lender for an explanation if there is anything you don't understand. Read the purchase contract thoroughly so you know how your behavior will affect the deal and learn about the exact finance terms to ensure you know what is going on and don't get caught by surprise.
There are many options when it comes to securing a mortgage or refinance, so it's important that you know what you are looking for and do as much research as possible to find the mortgage lender that best fit your needs and financial health.
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