Becoming a homeowner or deciding to refinance your home takes some doing, and which pen to use on that mountain of paperwork isn’t the only decision you’ll need to make. Staying on top of the mortgage process will reduce your overall costs and stress, but did you know that choosing a mortgage lender also affects your final results? Knowing how to choose a mortgage lender matters, from the service provider’s trustworthiness to the loan terms and rates you receive.
Below are a few details on what to look for as you settle on your mortgage lender. As Houston’s trusted mortgage broker, we’ve helped countless people get this right.
Make Sure They Have the Loans You Want
Not every real estate mortgage lender handles home loans. Many types of mortgages and loans crop up, so you should ensure any lender you agree to use deals specifically in home loans.
The three main types of home loans are as follows:
Conventional
The government does not back conventional loans. These mortgages come from private lenders and typically feature fixed interest rates. They can be conforming–within the Federal Housing Finance Agency (FHFA), Dodd-Frank Act, and Consumer Finance Protection Bureau guidelines–or nonconforming.
FHA
The Federal Housing Administration offers loans for people with lower credit scores. These mortgages often feature smaller down payments and lower interest rates than you’ll find in the conventional options. However, you must meet more stringent financial requirements to apply, and you will need to pay for mortgage insurance, as well.
VA
The Department of Veterans Affairs (VA) guarantees home loans for veterans, active-duty service members, and surviving spouses. They typically have lower interest rates than conventional loans and can be fixed or adjustable-rate mortgages.
- Fixed-rate mortgage interest rates don’t shift during the mortgage term.
- Adjustable-rate mortgage interest can change based on market trends.
A Word On Jumbo Loans
Less commonly, a jumbo loan can finance your property if it is too expensive for conventional loans. The terms vary greatly due to the significant amount of money these loans provide.
All jumbo loans fall under the nonconforming mortgage label (due to exceeding loan limit guidelines set by the FHFA).
Get Your Finances in Order
As you investigate how to choose a mortgage lender, you need to know what you can offer as a borrower. For example, you’ll want to check your FICO score–a type of credit score that about FICO claims 90% of mortgage lenders in the United States use as a risk assessment number. You should also consider the following areas a mortgage lender will assess:
Credit Score
Many lenders require you to meet or exceed minimum credit score limits before they consider giving you a loan.
- For conventional mortgages, the minimum scores typically sit around 580 to 620
- For jumbo loans, the minimum credit scores break into the 700s.
Down Payment
How much down payment can you put on the property you want to buy or need to refinance? When buying a house, most lenders generally expect a down payment of at least 3.5 to 5% of the purchase price. So, if your desired property costs $200,000, you can expect them to request a $10,000 down payment (before regular mortgage payments).
Payment Assistance
The city of Houston, state ordinances, and non-governmental assistance like NeighborhoodLIFT offer some down payment assistance programs.
Budget
You’ll pay for more than just the mortgage each month. For example, your budget should also include other expenses, such as:
- Closing costs
- Mortgage fees
- Property repair costs
- Any current credit card bills
- Payments for any current car or student loans
The best-case scenario includes a down payment of around 20% and a debt-to-income ratio below 36%. If you cannot meet these guidelines, certain government mortgage loans don’t require down payments (just income limits).
Tips for Finding the Right Lender for You
With your finances and home loan preferences confirmed, you can start looking into how to choose a mortgage lender. These steps can also help you find and purchase your home faster, especially when introducing yourself to the market as a first-time buyer:
- Review the lender’s mortgage terms. Don’t forget to compare interest rates.
- Check your potential offers with several lenders. This process should not require a hard inquiry on your credit. If it does, you’re likely doing the pre-approval with verified information like your SSN, not pre-qualification with unverified information.
- Look at lender reviews. What’s their legal track record? This will give you a baseline of how the lender treats their clients.
- Apply for pre-approval with multiple lenders. How much are they willing to lend you?
Note that the pre-approval process requires more information than pre-qualification, including employer information, outstanding debts, and more. You may see a temporary decrease in your credit score, but because you won’t be opening a credit line, the hard inquiry should not affect your score much. Still, keep your pre-approval attempts within a 30-day period for reduced impact on your credit score.
Once you have your pre-approval letter, you can start looking for beautiful homes within your budget and mortgage limits. A pre-approval letter can show real estate agents and personal sellers that you’re serious about the purchase. Refinancers can also use the pre-approval letter to increase their chances of loan exchange acceptance.
Finally, use the loan estimate in your letter to determine which mortgage lender you wish to work with. It should also detail other fees related to the application process.
Find the Best Options With Champions Mortgage
While you know how to choose a mortgage lender, the process can still be tedious and require a lot of effort on your part. Champions Mortgage streamlines this mortgage-seeking process to reduce your stress while finding top-quality mortgage options. Our skilled loan officers know what mortgage lenders look at and how to help you find the best deals.
Are you looking to buy or refinance a home in Houston, Texas, or nearby? Call Champions Mortgage at (281) 727-2500 for effective and friendly mortgage search services today!
