There are many types of financing out there for mortgage borrowers today. Some of the first things to do are ask for referrals from friends or your realtor.
- Reputation of the company
- Types of loans/financing available
- Interest rates
- Closing costs and fees
- Payment methods
- Prepayment penalties
- Reputation of the Company
Types of Loans/Financing Available
Most lenders offer conventional 15 and 30 year fixed rate mortgages. However, if you are interested in alternative financing methods such as adjustable rate mortgages (ARMS), balloon mortgages, hybrid mortgages or interest only loans, you will need to find a lender that services these types of loans.
If you are taking a large mortgage, or a jumbo mortgage, you may also need to do additional shopping around. Government entities such as the Federal Housing Administration (FHA) have different rules in regard to ensuring or “backing” jumbo mortgages, and lenders in general may charge different interest rates or have different terms for these larger-than-average mortgage loans.
Interest rates are a hugely important factor when choosing the right mortgage lender. Your interest rates play a key role in determining how much you pay each month and in determining how much you will pay back over the life of the loan. Shop around for banks, credit card unions, and online lenders to see who can offer you the best interest rate.
Your lender should be able to provide what’s known as a good faith estimate. While GFEs, as they are known, aren’t necessarily binding, lenders often honor their good faith estimates in order to protect their reputation in the business. You’ll get this GFE within three days of applying for your home mortgage loan. You might also ask about an interest rate lock, so you can gauge your financing options from a more consistent perspective.
If you have a special situation- you are a veteran, disabled, a low income buyer or a first time home buyer- you may need to do additional research to find the best interest rates. Don’t forget government-backed lenders such as Fannie Mae, HUD, or VA loans if you qualify.
Closing Costs and Fees
Your lender should also disclose all of the costs, fees, points, and payments associated with your loan. Each lender calculates the commission differently. Some of the costs that your lender might quote you will cover things like property taxes, escrow fees, credit report examination costs, and even insect and pest inspections. Know these costs up front and make sure you compare these costs among the lenders you are considering.
Find out how you will need to pay your mortgage. Most lenders allow the standard methods, such as direct debit and checks. Some lenders have programs that allow you to make biweekly payments to pay off your mortgage early if you opt to do so. Other lenders either do not allow these programs or will charge you extra to make biweekly payments.
Your lender should also explain to you if and when prepayment penalties apply. A prepayment penalty occurs when you pay down your mortgage faster than expected. Paying off your mortgage early can save you thousands of dollars in interest, but some lenders penalize you for electing this option.
Selecting the Right Mortgage Lender
The key to selecting the right mortgage lender for your situation is to do research before going to the lender so you have an understanding of appropriate fees. Once you know what to expect, you can compare different lenders and evaluate each objectively. Through careful research and consideration, you can select the right mortgage lender for your family and finances.