By Manuel Tovar, September 15 – Hispanic Solutions Group
You are buying a house and you need a mortgage. Congratulations! But, you don’t know how to choose the right lender who will offer the best deal and excellent customer service for what will probably be the most successful purchase of your life. Don’t worry, the specialists Hispanic Solutions Group They give you six steps to find the best mortgage lender.
Of course, you will find a wide variety of banks, too. online lenders, mortgage brokers and other players eager to accept your loan application. Here’s everything you need to know to choose the one that’s right for you. There are many lenders, today we reach six types and their respective steps to follow:
Types of Lenders
- Direct Lenders:
Direct lenders are banks, credit unions, online entities, and other organizations that provide mortgages directly to consumers, so you won’t have to pay a mortgage broker to shop around for the best rates. With a direct lender, you can easily do it on your own and for free.
- Benefits of a direct lender:Because a direct lender offers its own loans, it maintains most of the mortgage process in-house from application to processing, so you can ask the lender questions about rates, terms, fees, and more. You can compare these variables between various direct lenders to get an idea of what is best for you. As you shop around, talk to lenders about their rates, terms, fees, and other requirements like down payments to see if it suits you.
- Risks of a direct lender: rates and terms can vary widely between lenders. You may qualify for two loans of the same size, but the rates and terms of each offer may vary, so you could end up with a more expensive or complex loan if you don’t pay attention to the fine print. This is one of the many reasons why it pays to shop around with various lenders. Of course, you don’t need to work with a direct lender. There are other ways to buy and secure a mortgage.
- Mortgage brokers:
Mortgage brokers They are licensed independent professionals who act as mediators between lenders and borrowers. Brokers are usually paid by the borrower or the lender and charge a small percentage of the loan amount (usually 1% to 2%) for their services. They do not finance loans and do not set interest rates or loan origination fees, or make loan decisions.
- Correspondent Lenders:
These lenders originate and finance their own loans, but sell them quickly to larger lenders in the secondary mortgage market once the loan closes.
- Wholesale lenders:
Unlike direct lenders, wholesale lenders never interact with borrowers. They typically work with mortgage brokers and other third parties to offer their loan products at discounted rates, and they rely on brokers to help borrowers apply for a mortgage and work through the approval process.
- Portfolio Lenders:
These lenders originate and finance loans from their clients’ bank deposits so that they can hold onto the loans and not resell them after closing. Portfolio lenders typically include community banks, credit unions, and savings and loans.
- Hard money lenders:
Hard money lenders are private investors (a person or a group) offering short-term loans secured by real estate. While traditional lenders take a close look at your financial ability to pay off a mortgage, hard money lenders are more concerned with the value of the property to protect their investment. Hard money lenders generally require repayment in a short period of time, between one to five years. They also typically charge higher loan origination fees, closing costs, and interest rates, up to 10 percentage points higher than conventional lenders.
Steps to find the best mortgage lender.
To find the best mortgage lender, you need to shop around. Consider different options like your bank, local credit unions, online lenders, and more. Ask each of them about rates, loan terms, down payment requirements, homeowners insurance, closing costs, and fees of all kinds, and compare these details on every offer. Before you start shopping, there are a few steps you can take to get the best rate.
Step 1: Build your credit.
Long before you start applying for mortgages, check your finances and fix them, if required. This means taking out your credit score and credit reports. Once every 12 months, you are entitled to a free credit report from each of the three main reporting bureaus: by visiting annualcreditreport.com. If you have a lower credit score than expected, check your credit reports for errors, late payments, delinquent accounts, and high balances.
Using your credit cards below 30% of available credit and making payments on time are the best ways to improve your score, says the specialist.Jessica aliaga, who is the CEO and Credit Repair Specialist for Hispanic Solutions Group.
Having a strong credit score tells lenders that they can trust you to pay your debts on time – that is, they will feel comfortable doing business with you and offer you favorable rates to seal the deal. In addition to strong credit, lenders want to see that you can handle your existing debt in conjunction with a new mortgage payment, so they will look at your debt-to-income ratio. As you know, this formula adds up all your monthly debts and divides them by your gross monthly income to obtain a percentage.
Many lenders require a debt-to-income ratio below 43%, although some loan programs allow up to 50%. To keep your DTI rate manageable, avoid taking new loans or making large credit card purchases for at least three months before applying for a mortgage. You should stick to this rule until your mortgage is finalized, as lenders can obtain your credit report throughout the application process until the loan closes.
This is important because you can get a better interest rate with a higher credit score. A lower rate means smaller monthly payments.
Step 2: Determine your budget.
An important part of finding the right mortgage is knowing what price you can afford for a home. Lenders may allow you to qualify for a loan that would maximize your budget And it wouldn’t leave you any leeway for unexpected expenses, but getting such a mortgage can be a bad financial decision. Lenders pre-approve you based on your gross income, outstanding loans, and revolving debt, however, they don’t look at other monthly bills, like utilities, gas, daycare, insurance, or groceries, in their calculations.
To get a better idea of what you can afford, consider these types of expenses and your other financial goals. Look at your net monthly income to figure out how much you should spend on a mortgage. “Make a line item budget for all your monthly expenses and be conservative with your monthly mortgage payment,” says specialist Jessica, who adds that this is especially crucial for first-time home buyers who can’t get their home. ideal immediately.
By looking closely at your budget, you will know how much you can handle in your monthly mortgage payment. This can give you peace of mind and help you determine which mortgage lender offers the right terms for you. If you don’t budget carefully, you could inadvertently close out a mortgage you can’t afford. That can lead to missing payments, paying more interest, and even losing your home.
Step 3: Know your mortgage options.
A key aspect of finding the best mortgage lender is being able to speak their language, including knowing the different types of mortgages. Also a little initial research can help you separate mortgage facts from fiction. “Traditionally, when it comes to getting a mortgage, many people’s first thoughts are going to a bank or that they need a 20% down payment to pay for a house,” says specialist Jessica Aliaga, “That’s one way of thinking. obsolete “.
Many lenders offer conventional loans as low as 3% down, and some government-insured loans require no down payment, while others require only 3.5% down. You should be aware that if you deposit less than 20%, many lenders will charge higher interest rates and may require mortgage insurance.
Step 4: Compare the interest rates and terms of various lenders.
Deciding on the first lender you talk to is not the best idea. In fact, you should compare rates with different types of lenders to ensure you get the best deal on rates and terms. You should also try to find a lender who will communicate in the way you prefer, whether that is online, by text message, or in person.
If you don’t compare rates, you could leave money on the table, according to research by Freddie Mac published in 2018. In fact, borrowers could save an average of $ 1,500 over the life of their loan by getting at least one additional quote. and an average of $ 3,000 when obtaining five quotes. Yet nearly half of all home buyers don’t compare rates when shopping for a mortgage.
Another option that you should consider is finding a mortgage broker and working with him. A mortgage broker can do the groundwork for you by evaluating your application and compiling quotes from various lenders that closely match your needs. See how a broker’s loan offers compare to those you find on your own. Look at the differences in interest rates, fees, points, mortgage insurance, and down payments to compare what your final costs will be and make your decision. You begin to explore lenders, among the financial institutions of your choice that you know, dedicated to the mortgage.
Step 5. Get pre-approved for a mortgage
Applying for a mortgage pre-approval with three or four different lenders, or having a mortgage broker do this work for you, gives you a very interesting comparison on loan offers. It’s actually the only way to get accurate loan prices because lenders thoroughly review your credit and finances. Lenders may have different documentation requirements for pre-approval. Generally, you will need to provide several details, such as:
• Driver’s license or other government photo ID.
• Social security numbers of all borrowers (to get credit).
• Residential address history as well as names and contact informationor from owners in the last two years.
• Payment receipts for the last 30 days.
• Two years of federal tax returns, 1099 and W-2.
• Bank statement prints for all accounts for the last 60 days.
• List of all accountsFinancial Tasks (checking, savings, brokerage, 401 (k) and other retirement savings plans).
• List of all revolving and fixed debt payments, including credit cards, personal and auto loans, loans pafor students, alimony, or child support.
• Employment and income history, along with contact information for your current employer.
• Information about the initial payment, including the amount, source of funds, and gift letters if you receive help from a family member or friend.
• Information about recent liens or lawsuits against you or other borrowers, such as actions ofl IRS, bankruptcies, collection accounts or lawsuits, among other information that lenders deem appropriate.
Also, be careful: a mortgage pre-approval does not mean that you are hassle-free. Lenders can recheck your credit, employment and income history and assets at any time during the process. For example, if you get a loan for a new car, that changes your financial picture and can derail the mortgage against you. Specialist Jesica says that borrowers should “hold firm” after prior approval and avoid opening new lines of credit, moving money in their bank accounts, and changing jobs before and during the purchase process.
Step 6: You must read the fine print on the mortgage documents.
Mortgage documents are understood to make your eyes glaze over. But if you don’t read them carefully and there are mistakes or surprises, you might feel buyer’s remorse later on.The Consumer Financial Protection Office created a detailed explanation on the loan estimate form that lenders must provide you within three days of receiving your mortgage application.
Pay close attention to your interest rate, monthly payments, lender and loan processing fees, closing costs, and the amount of the down payment. These items shouldn’t change dramatically from pre-approval to closing if your credit and financial profile remains the same.
Lenders sometimes offer credits to help reduce the amount of cash owed at closing. However, be careful, these credits can increase the interest rate on your loan, which means that you will ultimately pay more in interest as a result.
On the other hand, when comparing loan estimates from different lenders, you will see a lot of third-party costs such as the lender’s title insurance, title search fees, appraisal fees, registration fees, taxes. transfer and other administrative costs. You can negotiate some of these closing costs, but know that lenders generally don’t set fees for third-party services.
Always ask questions if you do not understand certain fees or if you detect errors in the documentation (such as a misspelled name or an incorrect bank account). Anticipating any problems early can save you a lot of headaches later. When you are going to buy something important, it is always good to “shop around” by quoting some prices.
Shopping helps you find the best rates, and you can also compare other costs, such as fees, down payment requirements, and insurance. You can use this information to your advantage. To seal the deal, a lender may lower some of these requirements, if a competitor offers something better. According to a study by Fannie Mae, more than a third of home buyers who received multiple quotes negotiated lower interest rates. They also lowered insurance costs, origination fees, and appraisal fees.
Finally, we recommend doing your homework on the basics of home loans, doing this early on can set you up for success and help you become better acquainted with the different types of mortgage lenders out there. Mortgages are not one-size-fits-all products, so you need to know how they work and how they differ from one another. This will help you find the mortgage lender and loan that is best for your financial situation.
We invite you to follow our social networks: LinkendIn, Facebook, Twitter and Instagram to find more information related to finances. Also on our YouTube channel The Credit Channel to learn how to improve your credit. If you need help in repairing your credit, disputing debts that do not belong to you, or other services, call us at (612) 216-1599.