How to Choose a Mortgage Lender

March 23rd, 2022
types of mortgage lenders

Even if you haven’t ever gone through the process of buying a home, you probably already understand that a new home is a significant investment—one of the largest you will ever make in your lifetime. If you’re a first-time homebuyer, the process of finding the home of your dreams and securing the mortgage you need can seem daunting. Questions abound, such as “how to choose a mortgage lender” and “what are the types of mortgage lenders available to me?”

The truth is, securing a mortgage can be more than a little complex, but it’s possible to make the process relatively simple, even if you’re a first-timer. All you need is a little knowledge and direction, which starts with the answers to some of those frequently asked questions.

How to find and choose the best mortgage lender for you depends on your situation and your needs. You can use mortgage brokers, traditional banking institutions, credit unions, and more. One important thing to remember is that this loan is for the long haul. If your loan originator (the institution you borrow money from) is also in charge of servicing your loan, you’ll probably be in relatively close touch with them for many years—maybe even decades.

What’s the difference between your loan originator and your loan servicer? Simply put, your loan originator is whoever you initially borrow the money from. The institution that services your loan, on the other hand, is in charge of sending out your monthly statements, collecting your payments, and more, so you’ll be interacting with them at least once a month, probably for a very long time.

Some loan originators also handle servicing, while others subcontract it to outside vendors. Refinancing options are also available to you during the life of your loan, and refinancing may change who handles your mortgage servicing.

Questions to Prepare for Your Mortgage Lender

In addition to the questions, you’ll want to answer before you begin your search, such as “how to choose a mortgage lender,” you’ll also want to be prepared with some questions for when you talk to prospective lenders. Before you speak with a lender, you should have at least some idea of how much you hope to borrow, the type and size of home you’re shopping for, and your own current financial situation. The questions you ask your mortgage lender will depend a bit on your personal situation, but the following are the most common questions home buyers bring to prospective lenders:

  1. What type of home loans or mortgages do you offer?
  • Which type of mortgage would you recommend for me?
  • What’s the difference between being prequalified and preapproved for a loan?
  • What are the current interest rates and the annual percentage rate I should expect?
  • How much down payment will I need to provide?
  • Do I have to pay mortgage insurance?
  • What is the average loan processing time?
  • What will my monthly mortgage payment be?
  • What costs will I be expected to pay at closing?

The Four Major Types of Mortgage Lenders

Of course, before you can ask all those questions of a prospective mortgage lender, you need to find one in the first place. How do you go about doing it? Four major types of mortgage lenders “originate” or provide mortgages to borrowers directly. Odds are, you’ll be getting your mortgage from one of these types of mortgage lenders:

  1. Conventional Banks. Also known as retail lenders or direct lenders, these “brick and mortar” companies are no different than (and may even be) the bank you use every day. For mortgage lending, they work directly with borrowers, and they’re the first type of lending agency most people think of, simply because we all work with banks already. There’s absolutely nothing wrong with beginning your quest for a mortgage at the very same bank where you already have your checking and savings accounts.
  • Credit Unions. Much like conventional banks, credit unions are also considered direct lenders. In fact, credit unions look and act a whole lot like a conventional bank with one big exception: The borrower must be a member of the credit union to use it. Credit unions also typically offer perks and special offers for members along with excellent customer service. Before you decide to go to a credit union for a mortgage, however, you should speak with a representative to see what is required to become a member. Some credit unions only serve employees within a certain industry, individuals who live in a particular area, or workers who are members of a labor union.
  • Mortgage Brokers. Think of a mortgage broker—sometimes known as a mortgage banker—as something like a personal shopper who helps you to find the best mortgage to meet your needs. Mortgage brokers can be great, because they often help you to process your mortgage application, fill out all the necessary documents, and then “shop around” for the best mortgage for you. Mortgage brokers are not actual mortgage lenders, however. Rather, they are agents operating on your behalf, and they usually require you to pay a fee for their services.
  • Non-Bank Mortgage Lenders. Then there’s everyone else. While you may not be as familiar with the term, non-bank mortgage lender is a large umbrella that covers any lender besides the ones we covered above. Usually, this is because they operate entirely online. Quicken Loans is one very common example of a non-bank online mortgage lender. One of the key benefits of such online programs is that they often operate outside of traditional banking hours. For those who want the personalized service of a “brick and mortar” lender, on the other hand, the online process may prove intimidating.

We hope you’re starting to feel a little more comfortable with the whole mortgage process at this point, and maybe you’re ready to start shopping around for the mortgage lender that’s right for you. The next question you may run into is how to compare mortgage loan offers. The answer is that you’ll need to do a little research.

Because mortgage loans cover such large purchases, they’re relatively complex financial tools, and there’s more to them than just how much you want to borrow and for now long. You’ll need to understand the factors that influence your interest rate, including your credit score, down payment, and the terms of the loan itself. There are also different types of loans, from fixed-rate to adjustable, all of which have different pros and cons. Many lending institutions also require a down payment, often of 20% of a home’s purchase price. If you’re unable to make a down payment of that size, you may also need to buy mortgage insurance to cover the difference.

It all sounds like a lot, but it’s really just a matter of learning your way around. Before you know it, you’ll be signing the paperwork on the home of your dreams! At Mantua, we make home shopping the easiest (and most fun) part of the whole home-buying process! To learn more about homes at Mantua and discover a life you’ve always dreamed of, contact us today!