Evaluating Mortgage Lenders

Foreclosures in the real estate market have made it more difficult to obtain a home loan if your credit score is not up to some lenders standards. With the collapse of the sub-prime market, lenders are more diligent and strict with their lending standards. Thrown into the mix are unscrupulous lenders.

Yes, you have to be careful when applying for a home loan. A clue that a lender is unscrupulous is boastful ads that say they lend to anyone and other such ads. If no one is turned down, then something is wrong with this company. They may also not disclose their fees. Never consider a lender who will not disclose their fees. If they do disclose their fees to you, make sure you have the lender send the fees to you in writing. Do not ever sign a contract for a home loan without understanding all fees involved. The rule of thumb is always, "If it is too good to be true, then it is." Stay away.

Finding a good lender is fairly easy if you know what to look for. First of all, ask family, friends and neighbors if they have had a good experience with a particular lender. You don't always have to use local banks and mortgage companies; although, it is usually easier to find out if they are reputable. If family, friends and neighbors can't provide a reputable lender, search online for lenders. Some hallmarks of a reputable lender are the Better Business Bureau (BBB) icon on the lender's website.

Another indicator is any industry trademarks and associations noted on the website. These associations typically have a place on their websites where you can check the reputation of a particular member. Make sure you do your due diligence and check out a lender thoroughly before signing on the dotted line.

When you do find five or six good lenders, apply to see who will give you the lowest interest rate and charge the lowest fees. If you asked for all their fees, you already know what their fees will be. If you apply for several home loans within a short time frame - within ten days - your credit rating is typically not impacted. It will be obvious on your credit report that the applied for loans were all a part of one activity. In addition, you can explain this if it ever becomes an issue for any future loans.

Some factors to consider are whether there will be a penalty for paying off your loan early, and if you will be charged private mortgage insurance (PMI). PMI is expensive and can put your monthly payment into a range that is not affordable for you. If you pay down 20 percent or more, then PMI should not be an issue.

Congratulations! Now that you've found good lenders, compared all their fees and found the ones that will provide you with the lowest interest rates, you are ready to choose a lender.