Finding the right lender is an essential first step to finding the right home loan for your needs. Here are the main 5 things to look out for when comparing the best mortgage companies:
- Type of lender: There are marketplaces like LendingTree and Credible, direct lenders with online platforms and physical branches like Quicken Loans and Freedom Mortgage, and direct lenders that only operate online, such as Better Mortgage. Other types of lenders include traditional banks and credit unions. Each type of lender offers different pros and cons, so it’s important to know which category your chosen lender falls under.
- Speed: A quick application process offers certainty and stability, while a slow process could make your home purchase more expensive or cause you to lose your bid altogether. Therefore, only go with lenders that have a reputation for quick service, speedy pre-approval, and short closing times.
- Ease of use: These days, all the best mortgage lenders allow their customers to apply for home loans over the internet. Always compare lender websites and read lender reviews to understand which ones are easiest to use.
- Reputation: With thousands of lenders in the mortgage market, it’s fair to say that some are open and transparent about their service and others are not. These days, all it takes to find out if a lender is trustworthy is to read reviews.
- Customer service: For most people, taking out a mortgage is the biggest decision they’ll ever make in their lives. Therefore, home buyers deserve the absolute best customer service from their lender. All the mortgage lenders reviewed on this page are known for offering expert customer service, among other things.
Choosing The Best Mortgage Loan For You
Take a deep breath and kick back for a second. Signing a mortgage, especially if it’s the first time you’re buying a home, is one of the biggest financial decisions you can make in your life and it’s not something you should rush into. Relax, knowing that you’ve done your homework. Compare how lenders perform. Here are some things to look out for when making your mortgage comparison:
Bigger payments or more interest: know your loan terms
One of the central questions when considering any mortgage is length of term versus size of payments. If you put down a bigger down payment and agree to bigger payments over a shorter loan term, you will pay less interest over the lifetime of the loan. That said, you will also have a higher monthly payment, so make sure this is something you can keep up with. The central question in this calculation is whether or not you’d prefer to pay less interest over the loan term, or would rather have somewhat more interest over a longer term, in exchange for a monthly payment that’s easier to make. This is a decision only you can make, and one that’s best done after taking a comprehensive look at your finances, long term plans and the mortgage lenders and rates available.
Fixed vs adjustable rate mortgages
With a fixed rate mortgage, the monthly payments are locked in for the entire loan term, which can help you plan your month-to-month expenses. A variable rate mortgage can adjust in keeping with changes in mortgage rates, potentially saving you money on the interest during the repayment period. Consider which is best for you, and don’t rush it.
Processing fees and penalties
Will you have to pay origination fees on the loan, and if so, how much? If you decide that you’d like to pay the mortgage off early, will there be a penalty fee? The sum cost of the interest, payments, and other fees forms what’s known as the annual percentage rate (APR), which is the total cost of the loan per year. Take a look at all of the fine print, and then you’ll get a clearer idea of the entire cost of the loan. Many will advertise advantages such as no origination fees, no lender fees, no commissions, or no closing costs.
APR and interest rates
This is the annual percentage rate your lender collects for providing the mortgage, comprising interest rate and certain fees. The best lender for you is the one that can offer the best APR for your credit score and financial details, not the one that offers the lowest APRs in general.
Types of loans
If you have good credit, a conventional fixed-rate or adjustable-rate mortgage is probably best for you. But if you have poor credit or don’t have enough money for a 20% down payment, you may want to explore government-backed loans like FHA or VA loans. Not all lenders offer the exact same loan products, so shop around.
Down payment requirements
Most lenders require a 20% down payment for conventional loans. Occasionally lenders will accept less, although they may ask you to pay monthly private mortgage insurance until you reach 20% equity. Many other loan types will allow lower down payment options, and some lenders go lower on conventional mortgages too.
How to Get the Best Mortgage Rate
Here are our top 5 tips for finding the best mortgage loan rates:
- Shop around: Make a mortgage comparison of at least 3-5 lenders to see how they all stack up against each other. Get quotes, and go back to them to ask for lower rates if you’ve gotten a lower quote elsewhere.
- Improve your credit score: If poor credit is preventing you from getting decent rates, the good news is there are ways to repair your credit, like paying off all your debts or taking out a small personal loan and paying it off quickly. Keep paying off your credit card balance and student loans monthly.
- Have a history of employment: In addition to credit score, lenders look at a borrower’s overall financial profile including employment history. The longer you’ve been in a stable job, the better your chances of getting a good rate.
- Make a higher down payment: The more you pay down at the start, the less equity the lender will have in your new home and the lower the risk for the lender. In return for reducing the lender’s risk, you may be able to score yourself a better rate.
- Agree to an adjustable rate: Adjustable-rate mortgages, or ARMs, start with lower interest rates than fixed mortgages. However, they also carry more risk, because your rate can go up (or down) once the introductory period ends, whereas the rate on a fixed-rate loan stays the same for the duration of the mortgage. If you don’t plan to stay in this home a while or want to take the risk, this is a great way to get significantly lower rates.
How to Apply for a Mortgage
Think of a mortgage like this—it’s your chance to buy and own property that would be unattainable as an up front purchase and build equity and value in that home. You’ll need to show that you have the financial means necessary to make the payments, but you don’t need to pay the value of a home in cash, allowing you to afford the home of your dreams through financing.
Step 1: Choose a mortgage lender
When going through the application process, don’t limit yourself to just one lender. Speak to a number of lenders so that you can see who offers the best interest rates, terms and customer service that suits your needs. In addition, once you have an idea of what to expect from lenders, you’ll have a better idea if potential lenders are giving you a good deal or not.
Step 2: Show your sources of income by supplying these documents:
- Bank statements, including any investment accounts
- Private and business related tax returns
- W2 tax forms from recent years
- Your monthly pay stubs
Step 3: Prioritize the terms that work for you
Some people are most interested in keeping their monthly payments low, while others are interested in making sure their payments don’t fluctuate and they’ll know what to expect for the years to come. Still others look toward paying off their mortgage quickly and building equity in the home. Think about what you need and which terms might be to your advantage—interest rates are important, but not the only consideration.
What is Mortgage Refinancing?
Simply put, refinancing a mortgage is a way for you to get new mortgage rates and terms that work better for you. With a refinanced mortgage, the lender pays off your previous home loan completely and you are left with the refinanced mortgage.
In order to refinance, you will need to go through basically the same process as when you received the initial mortgage. You will need to have your home appraised, submit financial documents, and pay closing costs to complete the process.
Why do people refinance their mortgages?
The main reason is to reach terms that are better for them. For instance, if your monthly mortgage payment is too high, then refinancing can be a way to get some relief. You can also refinance in order to switch from adjustable to fixed mortgage rates, or refinance in order to use your home equity to pay for other expenses in your life.
Understanding Mortgage Rates
The great news for prospective homeowners is that home loan rates are currently at one of the lowest levels in decades, hovering at below 4% for 30-year and 15-year-fixed rate mortgage loans. With additional options for 10-year mortgages and 20-year loans as well, and mortgage rates at their current low, this may be a great time to lock down a fixed rate option. Ask the best mortgage companies for their rates through online quote calculators or customer service agents.
There are a number of laws and regulations in place in the US to protect borrowers which all reputable mortgage companies will follow. On the federal level, these include a series of laws such as the Truth in Lending Act—which establishes disclosure requirements for lenders—and the Fair Housing Act, which bans discrimination based upon age, race, gender, religion, or nationality. Federal and state regulations are meant to uphold fairness in the lending process, and also to safeguard the financial information of home loan borrowers.
Before taking out a loan, it is important for you to know the relevant state and federal regulations that apply to it and that your mortgage lender adheres to them. These laws protect and help the borrower know their money and property are secure.
Important Mortgage Information
Regardless of the length, 10-, 15- or 30-year mortgages all require repayment. Once you’ve bought your home, that property and its equity value are yours to borrow against, sell for profit, renovate, or pass to your children. A home loan gives borrowers ownership opportunities, so take a look at the best mortgage lenders to find the mortgage rates and terms that work for you and your dream home.