How to Find the Best Mortgage Lender

Just as there are several different types of mortgages, there are several different types of mortgage lenders. Each offers some advantages that will make a particular type of lender better in some situations than others.

Mortgage Bankers and Brokers-which should you choose?

There are two main categories of mortgage lenders-bankers and brokers. A mortgage banker is a direct lender, and the lender you work with represents the bank who lends you money. If you decide to work with a direct lender, it is your responsibility to shop around and find the best mortgage rates and terms. The broker is a middleperson who is not tied to any particular mortgage institution-instead, they have access to mortgages from a range of different institutions, and they will usually do the legwork for you in shopping around for the mortgage that best meets your needs.

The main advantage of choosing a mortgage banker is that you know what you are getting-a reliable service, with little chance of coming into contact with a predatory lender. In addition, if you choose to get a mortgage from the bank you already do business with you may be entitled to a more favorable interest rate. The disadvantage is that you get very little choice, as most mortgage bankers offer very similar rates, terms and conditions.

A mortgage broker, on the other hand, provides you with plenty of choices. As the middleperson, a broker has access to wholesale lenders that offer a wide variety of mortgages of different types. If you need a sub-prime mortgage or another non-conventional type of mortgage, a broker is your best bet for obtaining one. For first-time buyers, a broker can also help make the process of getting a mortgage much easier, as they are able to offer advice on mortgage analysis, and the best ways of presenting loan applications.

Mortgage brokers do charge fees, of course. However, that is not always a significant problem. Brokers usually offer loans from wholesale mortgage lenders, and these loans have reduced rates in comparison to those offered by mortgage bankers. Once the broker has added their fee, the total cost of the mortgage is usually not much more than the cost of going to a mortgage banker.

The biggest potential problem in working with a broker is that this is not a licensed profession in many states, meaning that it can be difficult to be sure the broker you are dealing with is reputable.

Choose a Lender who will Work for You

Finding a good mortgage lender does not have to be difficult, even if you choose to go with a broker and must separate the good lenders from the bad before making your final choice. Often, it is not so much a case of finding a good lender as it is learning how to spot a bad one. Avoid mortgage lenders who say or do the following:

• Tries to convince you to borrow more than you want to or can afford by suggesting you opt for a higher risk loan.
  
• Asks you to sign blank documents.
  
• Encourages you to do anything dishonest, such as lie on your application.
  
• Does not give you a Good Faith Estimate within three days of your application.
  
• Promises you a mortgage that seems too good to be true-no closing costs and no points sounds great, but you should read the small print on the contract for penalties and hidden costs.

Any of the above can be good indications that your lender is more concerned with the commission they will make from your mortgage than in trying to help you find the best one for you. A good lender should provide you with several options without trying to steer you in any particular direction. They will offer you advice in helping you compare different mortgages, but should allow you to make the final decision.

Comparing Mortgages from Different Lenders

Picking out and comparing the most important points of each mortgage can be one of the most difficult aspects of getting a home loan. A mortgage is more than just an interest rate-there are also points, fees, and closing costs to consider.

Points are used to "buy down" your interest rate, with each point you buy representing one percent of the total loan amount. If you choose to buy points, the money is payable in cash at closing time. Lenders will usually give you several different rate and point options for the same loan.

The lock-in period for each mortgage should also be considered. The lock-in period is the amount of time for which the rate and points quoted are guaranteed. This is usually 30, 45, or 60 days, with higher loan fees applicable for longer lock-in periods.

Other features to compare include the maximum loan to value ratio each lender offers, whether or not you must pay mortgage insurance, the qualifying income to debt ratio of each lender, and whether any prepayment penalties exist for each mortgage.