8 Tips to Find the Best Online Mortgage Lenders


finding the best online mortgage lenders

So you need a home loan or want to refinance and decided to use an online mortgage company.

Great! They usually have the lowest mortgage 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?

Find the best online lenders with work using these 8 expert tips.

Current Mortgage Rates (December 2020)

Loan Term

Interest rate

APR

30-year fixed-rate

3.05%

3.28%

15-year fixed-rate

2.91%

3.06%

5/1 adjustable-rate

3.05%

3.25%

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. Have Lenders Pull Credit During the Rate Shopping Window

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

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.

3. Speak to Mortgage Brokers

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.

  • 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 Estimates 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

finding the best mortgage lenders online

It’s simple. The higher your credit score, the better the interest rate you’ll receive on your loan. 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. Work with 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 Online Mortgage Marketplaces

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.

Getting Pre-Approved

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.

Get Pre-Approved for a Mortgage Today

The Bottom Line

Finding the best mortgage lender online is no easy task. These 8 tips will help you find the best online mortgage lender to work with.

  • Check your credit
  • Have lenders pull credit during the rate shopping window
  • Speak to mortgage brokers
  • Compare rates with multiple lenders.
  • Improve your credit score before applying
  • Work with an experienced loan officer.
  • Use an online mortgage marketplace.
  • Work with a reputable mortgage lender.

 

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.

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