Finding the best mortgage lender is a crucial step in the homebuying process. But with so many institutions available, how can you get started, let alone know which lender is right for you? From understanding the terms of your loan to comparing rates, these six tips can help you choose the best mortgage lender. When you buy a home, you're going to keep it for the long term. You'll have to pay the mortgage for 15, 20, or 30 years, so it's smart to compare prices to find the best mortgage lenders in the market. NerdWallet has researched some of the best mortgage lenders to help you narrow down your options.
Then, work to improve your credit. Pay bills on time and try to pay off credit card balances. Reducing your debt will also improve your debt-to-income ratio (DTI), another key element that lenders evaluate. An ideal DTI ratio for a mortgage is less than 36%.
Lowering your debt payments will also free up money to save for a down payment on your home. FHA loans have lower credit rating requirements than other mortgages and require as little as 3.5% down payment. Conventional loans are generally aimed at borrowers with good credit, and some require such only 3% down payment. Mortgage loans also vary depending on the length of the term, such as 15 or 30 years, and depending on how the interest rate works.
In fixed-rate mortgages, the interest rate stays the same throughout the term of the loan; with an adjustable rate mortgage, the interest rate increases or decreases periodically, after an initial fixed-rate period. Two years of tax returns, W-2 and 1099 forms. Insurance services offered through NerdWallet Insurance Services, Inc. California resident license number, OK9203 insurance licenses.
To ensure you get the best deal for your home loan, research and compare rates and terms with at least three lenders. Learn more about choosing a mortgage lender with these eight steps. The choice between a national and local mortgage lender depends on several factors. If you prefer a more personal touch and a view of the local market, a local lender may be the best option for you. However, if you value a wide range of loan options and wide accessibility, a domestic lender may be better suited.
You should have your first conversation with a mortgage lender six months before you plan to buy a home. More mortgages are issued with non-bank mortgage lenders, which include companies that offer their services exclusively online that with other options. A lender with competitive rates and excellent customer service can save you money and make the mortgage process easier. If you want someone to look for several lenders for you and find the best loan option, working with a mortgage broker may be your best option.
Mortgage companies in this category offer financing, but they grant loans through specialized mortgage brokers instead of working directly with borrowers. To get pre-approved for a mortgage or a loan to refinance, you need to take a detailed look at how well you've made financial decisions over your financial life. In addition to budgeting for monthly mortgage payments, you'll need to save for a down payment, either the typical 20% of a conventional loan to avoid mortgage insurance or a much smaller amount. However, you may prefer higher rates to offset the commission the lender must pay, or you may only receive offers from lenders in that broker's network.
The best mortgage lenders will make getting pre-approved for a mortgage easy, fast, and free, often through their websites. Your local bank may also offer you special mortgage rates if you have large sums of money invested or deposited in a savings account. They may find opportunities that you couldn't find, as some lenders work exclusively through brokers (see “Wholesale Lenders” above). Brokers usually charge a small percentage of the loan amount (usually 1 to 2 percent) for their services, which the lender pays (but transfers to you as part of the cost of the mortgage).
Also, make sure you can afford a mortgage by calculating your monthly payment (principal and interest, yes, but also home insurance, property taxes, and mortgage insurance, if applicable). Its advantages include a wide selection of mortgage products, faster approval processes and the ability to complete the mortgage process online.
