So you need a home loan or want to refinance and decided to use an online mortgage company.
And why not? Online mortgage lenders are awesome.
They typically have the lowest rates and have a wider variety of loan programs.
But with so many, how do you go about finding the best lenders to work with?
RATE SEARCH: Compare mortgage rates
1. Know your credit score
Your credit score is one of the main factors lenders look at when deciding whether or not to approve a home loan. You can get your credit scores for free from Credit Sesame and Credit Karma. While these are just consumer scores, the scores lenders see will be different. It will at least give you a good idea of where your scores are.
Knowing your credit scores is important when choosing which lenders to contact. If you have scores on the lower end, such as 580 or 600, you need to speak to lenders who work with lower credit scores.
2. You can apply with as many mortgage lenders as you want within 30 days without hurting your credit
Many consumers choose not to apply with multiple lenders because they are afraid of hurting their credit score. However, FICO, the credit scoring company used by most lenders. Allows a “rate shopping period” so consumers can apply with multiple lenders without affecting their credit score.
Whether you’re shopping for a home purchase or a refinance loan. You have a 30 day grace period to have as many lenders pull your credit as you want, and it will only count as a single inquiry. When shopping for a mortgage, it’s important to move quickly because of this rate whopping window.
3. Talk to a mortgage broker
Mortgage brokers are like independent loan officers that have many banks and lenders to choose from.
They can check rates, payments, and terms with several lenders to get you the best deal. It also means they are more likely to get you approved if you’re on the border of being approved.
Brokers have access to all types of mortgage loans. FHA, VA, USDA, 203k, Jumbo loans, and conventional loans.
If you’re a first-time homebuyer, a mortgage broker can help explain the process and go over all the types of mortgage programs available because they have access to everything. First-time buyers also have lower scores on average, and a broker probably works with subprime, direct lenders, and bad credit lenders.
Brokers do have fees for their service, and sometimes these fees can be quite costly. You also run the broker’s risk, not getting you the best rate or lowest payment because one lender pays a bigger commission than another lender.
KNOW THE DIFFERENT TYPES OF LENDERS
As a first-time homebuyer, it can be very confusing to understand all the different mortgage companies and lenders out there.
- Correspondent lender: Correspondent lenders are local mortgage companies or online lenders that initially offers the mortgage loan before selling it to a larger bank.
- Credit unions: Credit unions, unlike banks, are less focused on the bottom line and more focused on the community and relationships. If there is a local credit union, become a member, and ask about their loan programs.
- Mortgage bankers: A mortgage banker or mortgage broker is an independent company that writes loans and puts together loan files for large lenders, banks, and direct lenders.
- Direct Lender: A direct lender is the actual financial institution offering the loan, such as Wells Fargo or Bank of America. You work with a loan officer that is an employee of the direct lender, no middlemen.
4. Compare loan offers from multiple online lenders
Not every online mortgage company will offer you the same rate. It’s recommended to get loan offers from at least 3-4 different lenders. By getting multiple home loan estimates, you will rest easy knowing you’re getting a competitive mortgage rate and the lowest monthly payment.
Lenders also charge closing costs; these costs vary from lender to lender. By comparing multiple home loan offers, you will also be able to make sure you’re not paying too much in closing costs.
Don’t just check for 30-yr fixed-rate mortgage rates; see what rates they offer for an adjustable-rate mortgage. In some cases, a 5-1 ARM (adjustable-rate mortgage) may be more beneficial than a fixed-rate mortgage loan.
5. Maximize your credit score
It’s simple. The higher your credit score, the best mortgage rate you’ll receive. You can do a few things to make sure your score is as high as it can be before having lenders pull your credit.
Pay down your credit card balances: Your credit card balance ratio compared to your credit limit is your credit utilization ratio. This ratio makes up 30% of your FICO score. It’s a huge factor in your credit score. Pay those balances off completely if you can, at least make sure they’re under 15% and keep it that way while getting a mortgage.
Try to get collection accounts removed: if you have collection accounts, you know they are killing your score. The only way to improve your score is to have the collection removed. Simply paying it dies not to help your credit. You should contact the creditor and ask them if they will agree to remove it if you pay it off. This is known as a pay for delete.
Read more about increasing your credit score before applying for a loan.
6. Choose an experienced loan officer
An experienced loan officer can help you close your home on time, without a ton of hassles. An inexperienced loan officer can create massive headaches and even delay your closing. Some online mortgage companies are so busy that they make mistakes. An experienced loan officer will be able to help you choose the right type of mortgage and guide you along the way. The right loan officer is almost as important as the right lender.
Ask a lot of questions if they stumble over answers or give you wrong answers, that’s a major red flag. If you find yourself having to repeat things they should know already repeatedly, beware; you don’t want a forgetful lender.
7. Use an online mortgage marketplace website
Hundreds of online lenders pop up on Google. Calling every online mortgage company is nearly impossible. There are great websites that allow you to compare online mortgage lenders.
Companies like Lending Tree and The Lenders Network refer you to several online mortgage lenders so you can compare mortgage rates. While these online mortgage marketplace websites are great, you don’t have to stop your search. You can and should compare rates with a couple more lenders.
Remember, these companies don’t match you with the best mortgage lenders online. They match you to the best mortgage lenders in their networks that pay them for mortgage leads, not necessarily “the best mortgage companies.” You might be able to get a lower rate somewhere else.
8. Find a reputable mortgage company
You want to make sure that the online lender you’re working with is reputable. You can check lender reviews online, but read them with a grain of salt.
Some online lenders like Loan Depot and Carrington Mortgage offer subprime loans for borrowers with low credit scores. These are not only risky loans; they are challenging to complete. Because these mortgage companies take on risker deals, they will have more negative reviews from people whose loans fell apart because of credit or income issues.
Before you can start house hunting, you’ll need a pre-approval letter. Using a pre-approval letter from a bank or lender doesn’t mean you have to use that lender. You can get pre-approved in one phone call. You need one pre-approval; after you get one, you don’t need to ask each lender for one.
Finding the best mortgage lender online is no easy task. There is no clear cut”best mortgage company” you have to find the best mortgage lender for your situation.
Whether you’re looking to buy a new home or refinance your existing home, hopefully, these tips help you on your journey to finding your next mortgage company.
RATE SEARCH: Shop and compare loan offers