When it comes to buying a home for the first time, financing is one of the most important steps in the process. In particular, you need to know what to look for in a mortgage lender and the various products they offer. Because, for better or worse, your mortgage will follow you around for years.
How to Properly Vet Mortgage Lenders
Most first-time homebuyers are extremely ignorant on how home loans work and what sort of things are important when comparing different lenders. In an effort to bridge the gap between what you know and what you should know, here are some pointers for properly vetting mortgage lenders:
What Do You Want?
What do you want out of a lender? Are you looking for a company that has the backing of a large national brand name, or do you prefer a small, local lender who will know your name when you walk through the door?
As in any service industry, there are plenty of differences between providers. You need to set your priorities early on so that you can narrow the list of potential lenders from the hundreds to just a handful of suitors.
Consider Variety of Loan Products
It’s always good to have options and flexibility when it comes to selecting a home loan. Certain lenders have more variety in the products they offer. Specifically looking for lenders that fall into this category will give you more opportunities.
Take J.G. Wentworth as an example. According to one independent review site, they offer fixed-rate mortgages (with terms of 15, 20, and 30 years), adjustable rate mortgages (3, 5, and 7-year terms), jumbo loans, and VA loans. Other lenders may only offer a couple of these options, which limits the convenience of comparing various products.
You’ll also find that every lender has a sweet spot. If this happens to align with your preferred loan product, you could have more leverage. The lender may actually try to court you, rather than the other way around.
Evaluate the Company’s Reputation
Reputation is plays a significant role in selecting a mortgage lender. If it’s a large, mainstream lender, begin by researching the national reputation in the home mortgage industry. Are they well-respected? Or are they know for conflicts and scandals?
If there’s a local branch in your area, you should also drill down and learn more about the reputation of the specific lender in your town. What’s their individual reputation? You may find that there’s a discrepancy between the two.
Speak to Current Clients
Speak to your friends, neighbors, real estate agent, coworkers, and family members. Who do they have their mortgages with? Have they been satisfied with them? Do they have advice or recommendations? It’s always nice to get the client’s perspective.
Study Their Rates
Lenders are a lot like gas stations. Rate changes are largely out of their control and when one lender changes their rate, others will fall come along for the ride. You won’t find a ton of variance in rates from one lender to the next, but small discrepancies do exist. If you have a particularly large loan, a quarter of a percentage point can matter. So do your research, but remember that there are plenty of other factors in play.
Compare Apples to Apples
When vetting lenders and their mortgage products, be sure you’re comparing apples to apples. It’s easy to lose sight of what really matters in these situations.
For example, you can’t adequately compare one lender to the next when one is offering you an ARM loan and another a 30-year fixed-rate mortgage. It’s much easier to pit them against one another when all relevant factors are the same.
Take Responsibility for Your Actions
Nobody is going to force you to go with a particular mortgage lender. We operate in a free market society where you, the consumer, have a choice over which companies you do business with. At the end of the day, you’ll have to take personal and financial responsibility for the mortgage lender you choose.
Keep this in mind as you scrutinize the various options in front of you.