You’ve been advised: compare lendersfirst before making a transaction with one. It makes perfect sense. Choosing the right people to originate your mortgage is easily as important as nailing down the right mortgage program.
But how do you actually compare lenders? Do you simply search online and call the first ten recommended to you? Do you go for your local lender simply because your cousin – who got a house previously – said they were good servicers? Where should you even look first?
While so many have told you to get on with it, only very few can tell you just exactly how to get through it. To help you out, we have outlined here the cunningly simple process of finding and comparing lenders.
Step 1: Learn
It doesn’t help to be ignorant of the jargon. It’s not impossible to learn a simple term or two. And when it comes to mortgages, learning about interest and closing costs doesn’t really take any further than your desktop computer. There are various resources you can find online to learn the very basics of what you need: mortgage programs available, a general overview of who gets what, mortgage terms, what constitutes a mortgage payment, etc.
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Once you know the basics, it’s easy to proceed to the next step. And when it comes to finding the right lender, that usually means finding the normal interest rates. Check which rates are available to you – possibly even a range. Also learn the average lender fees, point charges, private mortgage insurance, as well as other typical costs that can be used to calculate for your monthly mortgage payments.
Now, with the help of a mortgage calculator (easily downloadable to your phone as a mobile application or readily accessible online for free), input the information you’ve gathered to calculate your payment. Feel free to play with the values and put your perspective into every kind of situation.
Once this is accomplished, you can start looking for lenders online, via your family or friends’ recommendations, or your local servicers. It is also good to check out your local credit union since they offer cheaper rates than traditional banks.
Step 2: Make your move
This is where the usual “call your lender first” advice takes place. Given that you have sufficient information about the mortgage process, what programs are good for you, and what the standard rates are, you can start calling plausible candidates to inquire for quotes.
Ask about:
- points, how they work, and how much do they actually translate to dollars
- how your down payment will affect your loan terms
- private mortgage insurance and how it is integrated into the loan if required
- turnaround times – for getting pre-approved, for the appraisal, and for closing
- lender fees charged at closing
- the possibility of waiving fees or rolling them into the loan
- the nature of the rate (whether fixed or adjustable – resets after a predetermined period of time)
- the circumstances of the earnest money
- the lock-in period
After you have the data, analyze the results and determine which lenders answer to your needs best.
Now you can start getting a pre-approval from your lender/s of choice. Just be careful on getting pre-approvals as lenders usually pull your credit to give you this. So if you ask for too many approvals from too many lenders, that might damage your credit.
Getting a pre-approval helps you strengthen a bid and lets you gauge a range of home price that you can afford.
In dealing with lenders, remember to not easily accept the first terms of the deal. It’s okay to negotiate, but negotiate reasonably. Know your risks and how much you are willing to stretch to settle for the best deal out of this expensive life decision.
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