When buying a new home, you are probably more interested in the neighborhood, the physical condition of the property, the layout and, of course, the price than evaluating which mortgage lender to use. However, faced with decades of mortgage payments, selecting the most favorable loan and terms is a crucial element of the home-buying process.
How do you know which lender to pick? Which factors do you use in evaluating a lender, and how important are they? Below are five important factors to consider when selecting the right mortgage lender.
How much does it cost to borrow money from the lender? The lower your interest rate, the less you have to pay over the course of your mortgage.
Is your interest rate fixed, adjustable, or balloon? How much principal are you required to pay each month in addition to interest payments? Even with the same interest rate, monthly payments can vary significantly depending on the terms of your loan. Use an online calculator to run the numbers.
Closing Costs and Other Fees:
It can be tempting to simplify your loan shopping process by simply looking at the down payment and interest rate. However, closing costs and other “hidden” fees can add considerably to your overall mortgage costs.
Transparency and Overall Customer Service:
Again, remember that entering into a mortgage agreement is a long-term, significant financial decision. Particularly if this is your first home-buying experience, you are likely to have a lot of questions. You want your mortgage lender to be one that is available, willing, and able to take the time to answer all your questions in a knowledgeable, up-front manner.
A concern for many homebuyers is that their mortgage lender will sell their mortgage to another lender. Lenders have an incentive to sell mortgages because they primarily receive money in two ways: they make a commission on loans they sell, and selling a mortgage frees up capital to make additional loans. While many borrowers feel anxious when they discover their loan has been sold, the terms of your loan should not change. It is important, however, to carefully compare your original mortgage agreement with the new agreement to ensure the terms have been recorded properly and have not changed.
There are a number of options to choose from when selecting a loan: thrift institutions, commercial banks, mortgage companies and credit unions. A mortgage broker can do some of the shopping for you. However, none of these institutions — including the brokers — are generally obligated to find the best loan for you. Do your own research to make sure the deal you’re getting is best for you.