Once you’ve found the home of your dreams, how do you decide where you’re going to get the mortgage? Some people just sign up with whatever lender their real estate agent recommends.
Maybe that’s a good deal and maybe it isn’t. How do you know? Are all mortgage lenders the same? Actually, they’re not, and the best mortgage can save you a ton of money and a lot of aggravation. That’s why we at Mid America Mortgage Services Inc. want you to understand best practices for comparing mortgage lenders and choosing the right one.
Who You Can Get a Loan From
A lot of lenders are vying for your business, and each is different.
- Retail lenders provide loans directly to you, the consumer. These lenders include your bank, your credit union and mortgage lenders. They are approachable and likely to maintain a personal relationship with you, but they don’t offer the array of products some lenders do.
- Direct lenders specialize in mortgages and issue their own loans. They sometimes have more flexible qualifying guidelines, but they’re also limited to a few mortgage products.
- Mortgage brokers act as agents to offer mortgages from a variety of lenders. They can search out a good deal for you. However, some lenders don’t offer their products through brokers, and many brokers charge a fee.
- Correspondent lenders issue mortgages then quickly sell them to other lenders who buy them as an investment. The main investors are the government agencies Fannie Mae and Freddie Mac. The terms of the mortgage won’t change when it’s sold, but you’ll send your payments somewhere new.
- Wholesale lenders work in the background and offer loans through third parties such as banks, credit unions and mortgage lenders. You work with your banker to arrange these, but the wholesaler actually puts up the money.
Other specialized types include portfolio lenders, who put up their own money and specialize in jumbo loans, and hard money lenders, who offer high-fee, high-interest short-term loans that are often used by house flippers.
The Importance of an Experienced Lender
It’s best to choose a lender who’s been in business for a while. First, mortgages are complicated, and experienced lenders understand all the details you might not. Also, they have a track record you can look at, including lots of ratings and testimonials from satisfied customers.
Fees, Commissions and Costs
Your Monthly Mortgage Payment
The amount paid monthly is called PITI, which stands for principal, interest, taxes and insurance.
Principal is the amount that actually pays down the loan balance.
Interest is the money the lender earns for making the loan. Early in your mortgage, you pay more interest than principal.
Property taxes and homeowner’s insurance and usually escrowed. That means you put money into an account each month, and the lender uses that money to pay these items..In addition, if you had a low down payment, you may have private mortgage insurance, which will be collected each month for part of the life of the mortgage.
You generally have to pay additional upfront costs to obtain a mortgage, and these are usually rolled into the mortgage and increase the loan amount. There are two quoted interest rates. The actual interest rate is what you pay on the total loan, while APR is slightly higher because it shows how closing costs increased the cost of the loan.
You’ve seen ads inviting you to apply for a mortgage online. Rates can be excellent but customer service can be spotty. Some lenders even require a non-refundable up-front deposit.
Tips for Getting the Best Mortgage
Research and self-education are the keys to success.
- Look at several lender’s websites to learn about products, rates and terms.
- Check your credit score to make sure it’s accurate.
- Be prepared to start the process with several lenders. This reveals the actual interest rate for you as opposed to the advertised rate.
- Provide requested documentation promptly, be honest and don’t try to hide anything. There’s little chance of getting away with it.
If you live in mid-Missouri, check out Mid America Mortgage Services Inc. A brief conversation with us, and you’ll see that we understand mortgages and will offer the right loan for you.