What To Look for in Your Mortgage Lender

In the market for a mortgage, or thinking about a home purchase some day? In either case, you’ll be approaching a mortgage lender for a home loan at some point. But how do you know what to look for? How can you tell a good mortgage lender from one that might not offer as many advantages? How do you know you’re getting the best deal?

These are all great questions. After all, a home is one of the largest purchases you’ll ever make in your life – for many people, the largest single purchase ever! Your new house may be the place where you realize your dream of a home, whether it’s overlooking a lake or a yard with a gazebo. It might be the place you raise a family. Buying a home can signal financial independence when you’re young, or help you realize substantial equity for you when you become older. In short, for reasons both financial and emotional, a home purchase is a uniquely important event. You want to make it with the best mortgage lender you can.

So what are the best practices to look for as you select a mortgage lender? Here are crucial qualities and key offerings to look for as you search.

Decision Factors

It’s a good idea to have looked at available homes, both online and in-person, before you begin discussions with lenders. Why? Because knowing the type of home you like and ballparking a home price provides both you and the lender with information that’s going to be important in the rest of the process, such as how much house you can afford and the type of mortgage you can qualify for.

Then, it’s advisable to talk to several mortgage lenders before making a final decision on who to work with. Remember, the decision is yours to make. You need to feel comfortable with the lender and trust that you and they can work together for the best outcome for you.

Level of Service

As you talk to each potential mortgage lender, observe their level and quality of service. What’s your initial impression? Are they friendly and approachable? If you leave a message, do they get back to you promptly? Do you feel like a name or a set of numbers? Do they take the time to get to know you, what you’re looking for, and your situation? 

Do they answer your questions completely and clearly? Do their answers make sense to you? If they give you information, in handouts or online, is it easy to follow and helpful? Do they give you a sense of the overall mortgage lending process?

What's the Lending Landscape?

What does each lender tell you about the lending landscape? They should be able to discuss average home prices and the general recent history of home prices in the area. The point of these discussions is to give you a sense of the overall real estate climate in South Georgia, where you intend to make a home. Trends in prices are important to buyers, and you need to know what the trends are.

But you should never, for example, feel pressured by a mortgage lender who tells you the time to get in on housing is now because real estate prices are only going up. First of all, no one has a crystal ball about the direction of home prices, or any other part of the economy. 

But second, and more importantly, purchasing a home is too complicated for a hard sell. The factors that lead you to purchase a home are too individual – and the lender needs to find out, and work with, those factors. You need to feel comfortable that the lender is working to find a comfortable situation for you, not just to get a commission.

Lenders should also be able to tell you any significant factors about the current lending landscape. Sometimes, for example, there is more competition for or availability among homes in a certain neighborhood or during a certain time of year. 

The Preapproval Process

Preapproval means that the lender will review the information they require for a mortgage application and indicate that they will approve you when the time comes. Lenders want to know that you will be able to make your mortgage payments. To that end, they review your bank statements, paystubs or income statements, credit score and history, and debt to income ratio to see the total debt you are currently carrying versus your income. (Lenders generally like to see this ratio below 43%, but some will preapprove a higher amount.) 

From this financial information, they estimate how much you could pay per month on a mortgage, which determines the amount of mortgage you qualify for. If they would approve it, you’ll receive a document saying you have preapproval for that amount. 

Why is preapproval important? Several reasons. First, it lets you know whether you can be approved for a mortgage! Many things can cause lenders to turn you down for a mortgage, including your credit score, a high debt to income ratio, or an uneven work history. It’s a good idea to know before you shop for a home. 

Second, if there are any areas that need improvement before you can be approved, you’ll have a chance to fix them, and then apply for preapproval again. A low credit score, for example, can be raised by paying bills on time and lowering your debt.

Third, preapproval lets sellers know you are serious and can be approved for a loan. This can give you an advantage over other potential buyers without preapproval, because the sellers can feel comfortable knowing that you can obtain a mortgage.

Interest Rates

Interest rates are a crucial component of the mortgage process. The lower the interest rate on your mortgage, the lower your payments will be. (Right now, as of April 2020, interest rates are at historically low levels, and that’s good news for prospective home buyers.)

But many factors affect the interest rates mortgage lenders offer, including your credit score, the size of your potential down payment, and more. Your lender should be able to discuss the interest rates they offer and what factors affect it. 

Company Culture and Reliability

While interest rates are extremely important in choosing a mortgage lender, it isn’t wise to make them the sole criteria of a lender. A mortgage lender’s company culture and reliability are equally important.

It’s very easy to find online mortgage companies that advertise super low interest rates, for instance. But they may not be the best choice. These companies are not local, so there is never any chance to know you, your goals, and your situation. Some of these companies, too, can advertise a low rate that later goes up, before the final paperwork is signed.

Look for a mortgage lender who knows you personally and will be honest, transparent, and reliable throughout the process. 

Product Offerings

Don’t go into the mortgage process believing that all mortgages are created equal. There are many different types of mortgages. Some of them offer 0% down payment and lower interest rates. When you choose a mortgage lender, make sure they offer mortgage products advantageous to you. Some potential mortgage products are:

• Veterans Affairs loans – U.S. Department of Veterans Affairs (VA) loans are designed for veterans and their families. They offer 0% down payments and low interest rates.
• FHA loans – These loans, offered in partnership with the U.S. Federal Housing Administration (FHA), are designed to promote home ownership by requiring a down payment of 3.5% and low interest rates to qualifying borrowers.
• USDA loans – U.S. Department of Agriculture loans can be obtained by people intending to purchase their first homes in south Georgia’s rural areas. USDA loans require 0% down and offer low interest rates.
• Conventional loans – Conventional loans usually require a 20% down payment, and interest rates can vary.

Can Your Lender Work With Different Types of Buyers?

A mortgage lender should be aware of your needs and your situation. Just as there are different mortgage products, there are different kinds of buyers. Be aware of whether a mortgage lender works to understand your unique needs.

First-time buyers

If you’re a first-time buyer, you can benefit from complete and clear explanations of the mortgage process. Your lender should explain what is required, from title searches to appraisals, and how long the process is likely to take. All buyers should be provided with an estimate of closing costs, but they are particularly important for first-time lenders who initially may not know closing costs exist. 

It’s not uncommon for first-time buyers to encounter challenges getting a down payment together. A lender should work with you on obtaining a low down payment mortgage if you’re eligible, and making sure that your monthly payments are comfortable.

Professionals

If you’re in a stable career and don’t have children, your needs may be different from those of families. Your mortgage lender should be responsive to the type of home you want, including smaller home and condo options and places close to where you work.

Whether you already own a home and are trading up or are a first-time buyer, your mortgage lender should offer products that can maximize your needs and the benefits of home ownership.

Families

If you are starting or have a family, you may be looking for a bigger house or one with different amenities, such as a large backyard for the kids to play in. Mortgage lenders should be aware of this, and proactive in suggesting possible neighborhoods. 

Lenders should provide information about relevant family-friendly factors, such as school districts, parks, and neighborhoods with families.

Downsizing Boomers

Many people consider downsizing once their children leave home and as retirement approaches. Downsizing can be a good option for people who want a more manageable house where they can age in place. Considerations might include fewer stairs, smaller square footage, and a low-maintenance yard.

Your mortgage lender should work with you to maximize any equity in your current home. For some boomers, equity in an existing house can be a cash cushion or reduce new home payments.

Any Questions?

The entire mortgage process is complicated. There are numerous options to consider, and many factors you may not have thought about. Mortgage lenders need to explain the process clearly and provide information that not everyone knows going in. Here are some examples.

1. What are closing costs?

“Closing costs” is a term used to cover expenses for multiple events that need to take place on the road to purchasing a home. Lenders require a home appraisal, for example, to make sure that your home is valued reasonably. They require a title search, to make sure that someone else doesn’t officially own the home (have title on it). They require an inspection, to make sure the house doesn’t have problems that might render it uninhabitable (such as pest infestation or structural weaknesses). 

Closing costs also refer to the costs that are part and parcel of buying a home. Lenders sometimes require that property taxes be paid in advance. They may also require a year of home insurance to be purchased. Homeowners who pay less than 20% in down payments may have to purchase private mortgage insurance (PMI). 

Lenders charge fees for their work, too, including origination fees and application fees, that are part of closing costs.

2. How much are closing costs?

Closing costs usually range from 3% to 6% of the home’s cost.

3. What does “term” mean in the mortgage process?

The term of your loan is how long it will take to pay it off. Mortgage loan terms can run for 15 years or 30 years. A 30-year mortgage results in a once-a-month payment. If you choose a 15-year term, you will make payments twice as often, but the home is paid off more quickly.

4. What’s the difference between an adjustable rate or fixed rate?

Interest rates in adjustable-rate mortgages (ARMs) fluctuate according to the direction of interest rates in the U.S. generally. In fixed-rate mortgages, they stay the same. As a result, your payments in an ARM can fluctuate up or down. Payments in a fixed-rate mortgage never vary, so you’ll always have a predictable payment. 

Buying a home is a major step for most people and selecting the right mortgage lender makes a big difference. At CBC Bank, you'll work with a fellow member of your local community who truly understands all that goes into this process. We'll get to know you, help you understand your options and be there every step of the way. It's our goal to make sure you are comfortable with your decisions and thrilled when you walk through the door of your new home. 

CBC Bank has worked with prospective homeowners for more than 90 years. Contact us today or give us a call 229.242.7600 to discuss the mortgage lending process.