How to Find the Best Mortgage Lenders

best mortgage lenders

Buying a home is the biggest investment you’ll ever make.

When getting a loan for hundreds of thousands of dollars it’s important to work with the best mortgage lender.

In this article we’re going to give you our best tips for finding the best mortgage lenders.

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1. Know the Types of Mortgage Lenders

There are many different types of mortgage lenders. You have direct lenders, wholesale lenders, mortgage brokers, banks, credit unions, etc. Knowing the differences between each type will help you choose which type of lender is best for your situation.

Banks – Banks such as Chase, Wells Fargo, Loan Depot, and Bank of America offer mortgage loans. They issue and fund the loan then sell them to investors like Fannie Mae and Freddie Mac.

Credit Unions – Local institutions that offer mortgage loans to their members with favorable interest rates and loan terms.

Portfolio Lenders – A portfolio lender offers mortgage loans to people who have a unique situation making them unable to qualify for conventional financing. The lender does not sell the mortgage, they hold onto it and make money by collecting interest.

Direct Lenders -A direct lender is a financing institution that issues and funds loans without the use of third-party mortgage brokers or correspondents.

Wholesale Lenders – A wholesale lender offers financing to homebuyers through the use of a third-party mortgage broker.

Mortgage Brokers – Usually a small local company that collects all mortgage documentation and has the ability to send it to multiple lenders.

2. Improve Your Credit Score

There are a lot of good mortgage companies that will only work with borrowers with good credit. And the higher your credit rating, the lower your interest rate will be. It’s important to do everything you can to increase your credit score before applying for a mortgage.

Credit Score Ranges

  • 579 or lower – Poor Credit
  • 580-619 – Low Credit
  • 620-679 – Fair Credit
  • 680-719 – Good Credit
  • 720 and higher – Excellent Credit

If you have a credit score below 620 it will be tough finding a mortgage lender willing to work with you. The minimum credit score requirement for an FHA loan is 580 with 3.5% down and 500-579 with 10% down. However, if your score is below 580 it will be very unlikely you will be approved for a home loan.

Improving your FICO score will increase the number of mortgage companies you can qualify with helping you get the lowest mortgage rates and best loan terms.

Tips to Improving Your Credit Score

Pay Down Credit Card Debt

The amount of credit card debt you have when compared to your credit limits is called your credit utilization ratio. It makes up 30% of your overall FICO score. Ideally you should keep your credit card debt below 15% of your card limits.

Do Not Apply for New Credit

Whenever you apply for a new credit card or loan the lender will run your credit first. This is a hard inquiry and it does negatively affect your credit score. While you are in the market to buy a house it’s best to hold off on applying for any new loans or lines of credit.

More tips to improve your credit score

3. Get Loan Estimates from Multiple Lenders

The interest rate you get and the amount of closing costs you pay will vary lender to lender. Do not make the mistake of just going with the first lender that approves your home loan.

You should shop around and get a loan estimate from at least 3 different mortgage lenders to ensure you get the best deal on closing costs and most competitive rate. Not only can you get the best deal but you can also get an idea of how competent your loan officer is.

Having a knowledgable and experience loan officer can go a long way in getting a good deal and closing on time.

You can also use the loan offers you receive to help you negotiate lower rates and fees.

4. Familiarize Yourself with the Loan Types

Knowing the type of home loan that’s the best fit for you will help you determine the best mortgage lenders for your situation.

FHA Loans – For first-time home buyers FHA loans are a great fit because of their low credit and down payment requirements. Buyers with a 580 credit score may qualify for an FHA mortgage with just a 3.5% down payment.

VA Loans – If you’re a veteran then you may qualify for a VA home loan. These are the cheapest type of home loan because they do not require a down payment or mortgage insurance.

Conventional Loans – If you have at least a 20% down payment then a conventional mortgage may be the best option because you can avoid having to carry PMI.

203k Loans – If you’re looking to purchase a fixer-upper, an FHA 203k loan gives you money to purchase the home plus up to $35,000 for repairs and renovations.

5. Get Pre-Approved First

Before you start house hunting you need to speak to a lender and get pre-approved for a mortgage. Most real estate agents won’t even start showing you homes until you have a pre-approval letter in hand.

Being pre-approved is different than being pre-qualified. In the real estate market a pre-qualification doesn’t hold much weight. But being pre-approved is much different, most sellers will not accept any offer that doesn’t include a pre-approval letter.

To get pre-approved you need to contact a mortgage company and supply them with documents to verify your income and assets. You will need the past 2 years worth of tax returns and w2’s from all jobs held. The lender will also pull a copy to see if you meet the minimum credit qualification for a loan. If everything checks out, you’ll be issued a pre-approval letter stating how much of a loan you qualify for.