The very first step of the home buying process for anyone who will need a home loan is to choose a lender for your mortgage pre-approval. This pre-approval tells you how much you qualify to borrow, which will help you shop in the right price range. The pre-approval also signals to sellers that you are a serious buyer and gives your offer more clout when you find the right home.
But how exactly do you choose which lender to get your pre-approval (and ultimately your home loan) from?
Here are five factors to consider when choosing a lender.
1. Qualification Requirements
The most important factor when choosing a lender is whether or not you can qualify for a loan from that lender.
Every lender has its own set of requirements. For example, a credit score of 580 might qualify you for a conventional loan with one lender but not another lender.
If you’re looking for a specific loan type to take advantage of lower down payments or lower credit requirements (like an FHA loan for first-time buyers or a VA loan for military members and veterans), confirm that your lender candidates offer that specific loan type.
2. Interest Rates
Interest rates are crucial when choosing a lender. Your interest rate affects both your monthly payment and the overall amount you end up paying on your mortgage over the term of your loan.
The lower the interest rate, the better. A low interest rate means you’re paying less to borrow your home loan from the lender. Interest rates depend on several factors including your credit score, the loan term (15 or 30-year), and the loan rate type (fixed-rate or adjustable-rate).
As a general rule, you will get the best possible interest rate if you have exceptional credit and a shorter loan term. Fixed-rate mortgages work well when interest rates are low and expected to increase, while adjustable-rate mortgages work best when interest rates are high and expected to decrease.
3. Fees
Lenders make their money by charging fees.
When choosing a lender, pay close attention to:
Loan origination fees: the cost for processing your loan.
Appraisal fees: the cost of getting a professional home valuation to confirm that your home is worth the amount of the loan.
Credit report fees: the cost of obtaining your credit report from the credit bureaus.
Discount points: the upfront cost of “buying” a lower interest rate.
These fees can add up. In some cases, the lender offering the lowest interest rate may be charging so much in fees that it offsets any savings from the low interest rate.
4. Response Times
How quickly does a lender respond to your inquiries?
You’ll need to work closely with your chosen lender to make sure your home purchase closes on schedule. Slow response times to your emails or phone calls may indicate that the lender is overwhelmed with other borrowers. And the lack of any response may indicate that the lender is unreliable.
5. Ease of the Application Process
Finally, how easy and convenient is it to apply for a loan? If a lender has good systems in place for accepting online applications quickly and easily, that lender will likely be easier to work with than a lender with inefficient systems.
And when you’re ready to start your home search, make sure you get a professional real estate agent in your corner. Real estate agent fees are paid by sellers, so it won’t cost you anything to have professional representation by a buyer’s agent. Contact Sequoia Real Estate today to learn more.