When making a loan application, finding the right mortgage lender is paramount. A suitable mortgage lender should fit your budget and offer flexibility. Different mortgage lenders in Fort Collins have different rates and fees. These differences can make your life unaffordable.
With that said, here is a guide to choosing the right mortgage lender.
Types of mortgage lenders
Choosing the right mortgage lender means understanding your options in the first place. According to expert mortgage brokers in Sydney, Australia, there are six major types of mortgage lenders: correspondent lenders, direct lenders, hard money lenders, mortgage brokers, portfolio lenders, and wholesale lenders.
Direct lenders include banks, credit unions, and other major financial institutions that provide mortgages to borrowers directly or through a third party. Direct lenders offer the entire loan process in-house, typically with a designated loan officer. However, the rates and fees vary substantially.
On the other hand, mortgage brokers are independent and licensed professionals who connect the lender and borrower. Unlike direct lenders, mortgage brokers do not decide on rates and fees. They simply serve as an agent between the lender and borrower, receiving a small percentage of the loan as a fee for their service.
Wholesale lenders work with mortgage brokers to provide loans to borrowers. These wholesale lenders usually offer their loans at discounted rates and rely on brokers to help borrowers through the application process.
Correspondent lenders create their loans by going through the loan origination process. What sets them apart is that they then sell their loans on the secondary mortgage market or to larger financial institutions after the loan closes. Correspondent lenders offer a variety of loan products, although it will be challenging to keep track of which organization is managing your mortgage until after its sale.
Portfolio lenders originate their loans from the bank deposits of their clients. These lenders include community banks, credit unions, and savings banks. Unlike correspondent lenders, they do not sell these mortgages to larger financial institutions for management. Portfolio lenders are especially beneficial to borrowers with unique circumstances as they offer the opportunity to work with a local institution to qualify for a loan. They may, however, offer limited amounts and unfavorable loan terms.
The last type of mortgage lender is the hard money lender. These lenders are private individuals or groups that offer loans against real estate properties. They are not as concerned with credit scores or your ability to repay the loan as they are with the property’s value. Hard money lenders treat a loan as an investment in the real estate you plan on purchasing. This focus on value means their loans are easy to qualify for but are more costly to service. Also, hard money lenders only loan out for the short term, typically one to five years.
Finding a Reverse Mortgage Lender
- Federally insured lenders: These lenders offer Home Equity Conversion Mortgages (HECMs), insured by the Federal Housing Administration (FHA). HECMs are the most common type of reverse mortgage and are only available through FHA-approved lenders.
- State-chartered lenders: These lenders are state-chartered and are not insured by the federal government. They may offer proprietary reverse mortgages with different requirements and terms than HECMs.
- Private lenders: Private lenders are not regulated by the government and offer proprietary reverse mortgages not insured by the FHA. These loans may have different requirements and terms than HECMs or state-chartered reverse mortgages. It is important to research each lender and their specific loan. Start by visiting NRMLA and Reverse Mortgage.
Factors to consider when choosing a mortgage lender
Once you understand the different mortgage lenders, some factors can help you determine the best for your mortgage situation.
The first is the type of loan terms you wish to secure. There are different mortgage loan terms, most commonly for 15 and 30 years. The shorter the term, the bigger the monthly payments you will have to make, but the interest rate will be lower. Longer-term loans mean smaller monthly payments with higher interest rates. There are four core mortgage loan types. Fixed-rate, adjustable rate, government-backed, and conventional.
Conventional loans are the typical financial institution-provided loans for which you need a good credit score to qualify. As the name implies, fixed-rate loans have a permanent interest rate that does not increase or decrease throughout the loan period. Adjustable rate mortgages (ARM) have a temporary fixed rate at the beginning of the loan, known as a teaser. The rates then vary over time depending on the lender and the loan.
Government-backed mortgages have the backing of the government but are approved. Usually, private lenders and institutions serve them. Though these loans have a strict appraisal process, they offer lower credit score requirements and reduced down payment costs. The three primary government-backed loans are Federal Housing Administration loans (FHA), Department of Veterans Affairs loans (VA), and US Department of Agriculture Loans (USDA).
Once you decide on the specific loan type you wish to pursue, compare multiple lenders’ terms, rates, and fees to ensure they fit your interests. It is not advisable to settle for the first mortgage lender you speak to as there will almost certainly be better terms on offer elsewhere. You should also check if you are eligible for any assistance programs. There are always several closing costs and down payment assistance programs for first-time home buyers. So ensure to utilize all the benefits available to you.
Another factor to consider when choosing the right mortgage lender is your budget. Some mortgage lenders might persuade you to pick an option that will max out your budget, leaving you unable to pay for contingencies. Knowing what houses you can afford is essential. You can know your budget by utilizing your savings, estimating your potential earnings, and planning for unexpected expenses. Working with a financial expert might be a good idea in this regard.
Your credit score is a substantial determining factor when looking for a mortgage lender. Most lenders will not grant your loan application if you have a bad credit score. Remember, the lenders have to believe you can repay the loan in the correct amounts when due. So having a good financial standing is vital. Before you even begin the loan application process, you should examine your finances, ensuring to pay off all debts. The best way to improve your credit score is to ensure you make on-time payments on credit cards of at least 30 percent of your available credit. Your debt-to-income ratio is also a significant determinant of your credit score, with many lenders requiring it below 43 percent.
Read the fine print
Finally, you should always ensure you read the fine print. Pay attention to interest rates, down payment costs, processing fees, closing costs, and other integral elements of the loan process. Ensure you trust the loan officer you work with, even if they are working for a reliable organization.
