Guide for Choosing a Mortgage Lender
When Does It Make Sense to Get a Mortgage?
Getting a mortgage makes sense if you are hoping to purchase a property and you cannot (or don't want to) pay in cash. Mortgages are for people who want to own a home instead of rent, but there are many factors to keep in mind as you weigh the pros and cons of becoming a homeowner vs. renting a home.
It also makes sense to look at mortgage lenders when you know you can meet minimum requirements for approval. For example, lenders consider factors like your credit score, your debt-to-income ratio, and your down payment amount (or loan-to-value ratio) when evaluating you for a home loan, and they may have specific minimum or maximum requirements for each of these factors.
If you are unsure of whether you should get a mortgage, or whether you can qualify for one, a mortgage calculator can help you see what your monthly payment might be based on your purchase amount, down payment, loan term, and interest rate.
How to Prepare to Apply for a Mortgage
There are several steps you can take to improve your chances of qualifying for a loan from the best mortgage lenders. Consider the following steps in the months and years leading up to homeownership.
- Check your credit score: Taking the time to check your credit score so you know where you stand is a smart move. After all, you'll need a credit score of 620 or higher for a conventional home loan from most lenders.
- Fix your credit if it needs work: If your credit score isn't where you want it to be, take steps like paying all your bills on time and paying off debt, both of which can improve it. Keep your credit card balances low compared to your credit limits. Refraining from opening new accounts or closing old ones leading up to your mortgage application is also a good idea.
- Save up a down payment: The best mortgage lenders often require a down payment of 3% or more for their conventional loans. However, you can avoid private mortgage insurance (PMI) if you save up a down payment of at least 20% of your home's purchase price.
- Pay off unsecured debts: The amount of debt you have is one of the main factors that influence your credit score. Paying off revolving debt, like credit card debt, has a bigger impact than paying off installment debt, like auto or student loans. Paying off debt can also lower your debt-to-income ratio, which is a determining factor used by mortgage lenders.
- "Check your rate" before you apply: See whether you can get pre-approved for a home loan and check your rate without affecting your credit, i.e., without a hard inquiry on your credit report. Some companies allow this option, and it can help you shop around and compare rates before you settle on a lender.
How to Pick a Mortgage Lender
While the lenders that made our list are the best companies offering mortgages and refinance loans on the market today, there are several factors to consider before you pick one. Consider the following details from each lender before you begin a loan application.
- Mortgage rates: Check for lenders that easily disclose their current mortgage rates online, although this may require submitting some information. Do your best to compare them. See if you can check your rate without affecting your credit, which will make it easier to shop around.
- Loan types: Check which lenders offer the type of home loan you want, whether that's a conventional loan or a government-backed mortgage like an FHA loan or a VA loan. Some lenders offer more loan types than others, so it makes sense to check early in the process.
- Fees and average closing costs: Read over the fine print on lender websites in order to check for loan fees. See if the lenders you’re considering disclose their average closing costs.
- Online experience: Decide if you want to work with a lender online or in person, and choose a company that offers the type of experience you want.
How the Mortgage Application Process Works
Once you decide on a lender, you can begin working through the process of applying for your loan. Fortunately, this step has become considerably easier over the last few decades thanks to technology and the internet. The majority of mortgage lenders let you begin your loan application online, and some even let you check your rate quickly and easily.
As you begin your mortgage application, you should have the following information ready and easily accessible:
- Government-issued personal identification (driver's license, passport, etc.)
- Social Security number
- Recent pay stubs
- Two to three months of bank statements
- W-2s for the last two years
- Investment trương mục statements
- List of your monthly debts
- Gift letter if you were gifted funds for your down payment
Even if you plan to work with a mortgage officer in person or over the phone, there's a good chance you'll be asked to fill out your loan application and upload your required documentation through a secure online portal. This expedites the application process considerably, and it's often more convenient for the loan company and the buyer.
Once your mortgage application is complete, your application will move to the underwriting process. This stage of the mortgage process often entails having an underwriter manually verify the information in your loan application, although some of the underwriting process may be automated.
Once your loan receives final approval and you have completed all the requirements and documentation, your mortgage application can move toward closing. The mortgage closing is when you finalize all the details, sign your loan documents, and get the keys to your home.
Frequently Asked Questions
What Is a Mortgage?
A mortgage is a specific type of secured loan that’s used to purchase a home or a piece of real estate. Mortgages are offered by a variety of financial institutions, including banks and credit unions. Some of the most common types of mortgages include fixed-rate mortgages, adjustable-rate mortgages, and government-backed home loans like FHA loans and VA loans.
Mortgages let you use the property you're buying as collateral, which means the lender could claim the property if you don’t make payments as agreed. You can typically make payments for up to 30 years before you own the property outright, although lenders typically let you pay more than the minimum payment amount without penalty if you want to pay down your home loan faster.
How Do You Qualify for a Mortgage?
Requirements for home loans vary depending on the type of mortgage and the lender you work with. However, you'll typically need to meet minimum credit score requirements and have a debt-to-income ratio that falls below a specific threshold. You may also need a down payment for your home, and you need to be able to prove you can repay the loan with valid proof of income. Depending on the amount of that down payment, you may need to buy private mortgage insurance, too.
How Do You Pay Your Mortgage?
Most mortgage companies offer several ways to make a payment on your loan. For example, Rocket Mortgage lets you make a loan payment online through a secure portal, over the phone, or via regular mail. Typically, the easiest method is to set up automated bank trương mục withdrawals through ACH.
You can check with your mortgage company to see which payment methods it accepts.
What Are the Main Types of Mortgages?
The main types of mortgages are conventional home loans, fixed-rate and adjustable-rate loans, FHA loans, USDA loans, and VA loans. However, there are also renovation loans, reverse mortgages, jumbo loans, and various specialized loan products.
Methodology: How We Chose the Best Mortgage Lenders
We evaluated 45 mortgage lenders and collected almost 1,500 data points before selecting our top choices. We weighed 15 criteria and gave a higher weight to those with a more significant impact on potential borrowers.
The top picks were selected based on factors including quality of service (weighted 50%), operational features (32%), loan types (12%), and accessibility (6%). We took into trương mục important considerations like whether or not the lender offers jumbo loans, how many states the lender is licensed in, and what the overall customer experience is like.
We also conducted a survey of 1,195 mortgage borrowers. We asked questions about customer satisfaction with various mortgage lenders and learned which features are most important from a customer perspective. We then applied this information to the weights used for scoring lenders.