When looking to purchase a home, you need a mortgage lender who can assist in finding the ideal loan. Since this loan will likely last for years, it’s essential that its rates and terms fit within your budget.
Start your search for a lender by asking friends and family for recommendations. They have likely firsthand experience of working with certain lenders, so they can give you insight into which ones make homebuyers contented.
Once you have a short list of lenders, research their mortgage offers, fees and closing costs to compare them. Studies have demonstrated that comparison-shopping can save hundreds of thousands over the course of 30 years with a 30-year mortgage.
Banks and credit unions are the two primary mortgage lenders, but there are also online lenders offering home loans. These options can be ideal for people who don’t want to deal with a large lender but want the convenience of applying, viewing loan estimates and reviewing documents all from their computer or smartphone.
Some lenders specialize in certain home loan types, such as USDA or FHA loans. These programs are tailored to help borrowers who have less-than-perfect credit, low incomes or lack the down payment required by traditional lenders.
Selecting the correct mortgage type can help you reduce your interest rate and monthly payments, making your home more affordable. There are two primary types of home mortgages: conforming and nonconforming.
Conventional loans are the standard type of mortgage most people think of when considering financing: They meet Fannie Mae and Freddie Mac standards and can be sold into the secondary market, requiring at least 3 percent down payment with temporary private mortgage insurance if your credit is less than perfect. If your credit is less than stellar, conventional loans may offer you temporary private mortgage insurance as well.
Nonconforming mortgages are also available and tailored to a borrower’s individual needs. These mortgages may be easier to qualify for since they don’t require the same down payment or mortgage insurance as conforming loans do.
Another alternative is a portfolio lender. These aren’t owned by traditional lenders, so they won’t need to sell off your debt after it closes. This frees up capital for traditional lenders to make more loans – potentially leading to lower mortgage rates and better terms.
Portfolio mortgages may be an attractive option for borrowers who don’t meet the more stringent eligibility requirements set by traditional mortgage lenders, or who require larger loan amounts.
When applying for a mortgage, make sure you gather all necessary documentation such as W-2s and tax returns. Your lender will verify your income, assets and credit history by requesting these documents and reviewing them with their underwriting department.
Once your application has been approved, you are one step closer to closing. At this stage, you should have an estimated cost for your mortgage and a preapproval letter from your lender. Throughout the underwriting process, they will continue asking questions and reviewing your financial data; if this is your first-time homebuyer, expect this stage to take up to one month; thus, patience is key during this stage.