Selecting a lender for your home mortgage is something you should carefully consider. Not all lenders offer the same level of service and some charge higher interest rates and fees than others.
Your mortgage lender is a long-term partner. Your home loan could be for up to 30 years, and it’s something you want to make sure you get right.
If you are a first-time buyer, you may be wondering how to choose a mortgage lender when there are so many options. The following overview will help you understand the different types of lenders and loans, and how to find a lender that will give you the best rates and service.
Types of Mortgage Lenders
The lender you obtain your mortgage from can have a major impact on how much you will pay in interest, fees, and the level of service you receive. The following are four common lenders to consider.
Banks operate as for-profit organizations, and they may have higher fees and interest rates than other lenders. After making a loan, a bank will usually sell it to Freddie Mac or Fannie Mae for a quick profit and to free their money to make other loans.
Credit unions operate similarly to banks, except they are non-profit organizations that primarily serve their local communities. Their fees and interest rates are lower than banks, and they usually hold the loans they make instead of selling them. Credit unions are known for their excellent customer service, and they often consider the big picture instead of focusing solely on your credit score.
Mortgage lenders are financial institutions that focus on one thing: mortgages. They offer a variety of mortgage options, and they may have lower credit requirements than other lenders. Like banks, mortgage lenders usually sell the loans they make.
A mortgage broker operates as a middleman between you and lenders. A broker can help you find a lender if you have damaged credit. They also do all of the negotiating for you, which could help you save on interest and fees.
Types of Mortgages
There are several different mortgages to choose from, and it’s important to understand the differences before applying so you can select the best one for your needs.
Fixed-rate mortgages are also sometimes referred to as conventional loans. These mortgages have interest rates that are fixed and your monthly payments will be the same for the duration of the loan. These loans allow you to lock in a great rate when interest is low.
Adjustable-rate mortgages (ARMs) are very similar to fixed-rate mortgages, except with one primary difference. ARMs have very low fixed interest rates in the beginning, which may be lower than fixed-rate mortgages. However, the interest rate is later allowed to fluctuate with the market, which often results in a rate increase.
ARMs are best for those who only plan on staying in their homes for a short period. They can take advantage of a low interest rate and then sell before they experience a rate increase.
A jumbo loan is a type of mortgage for homes that are valued at over $548,250 in most parts of the country. (The limit for high-cost areas is $822,375.) These loans have higher qualification requirements than conventional loans, and they also usually have higher interest rates.
Backed by the Federal Housing Administration (FHA), these mortgages only require down payments of 3.5% and minimum credit scores of 580. The required credit score can be as low as 500 if a down payment of 10% is made. These loans usually have lower interest rates than conventional loans.
Backed by the Department of Veterans Affairs (VA), these loans help active military personnel, veterans, and others become homeowners. VA loans do not require a down payment or PMI, have low interest rates and require lower credit scores than other loans.
Supported by the US Department of Agriculture (USDA), these loans do not require down payments, have competitive interest rates, and are easier to qualify for than conventional loans. USDA loans are only available for homes in certain rural locations.
Finding the Best Mortgage Interest Rate
When shopping for a mortgage, you want to find a lender that will offer the best interest rate, lowest fees, and the best terms. To do this, you may be tempted to apply for mortgages with several lenders to see which one will give you the best deal. Although this may sound like a good idea, multiple applications could damage your credit score.
Each time you apply for a mortgage, a hard credit check will be done. Multiple credit checks in a short period will cause your credit score to go down.
A better strategy is to apply for a mortgage with a lender that is known to have low interest rates, like a credit union. In addition to having lower fees and interest rates than other lenders, credit unions usually offer the same types of loans so you can get a great deal and the best loan for your needs.
How to Choose a Mortgage Lender: Credit Union Benefits
Not all lenders offer the same degree of customer service. If you ever have a question or concern, you want a lender that will take the time to address your issue and make sure you are satisfied.
Credit unions are mortgage lenders that are known for their superior customer service. Instead of being owned by investors, credit unions are nonprofit organizations that are owned by their members. They often provide a level of service that is above the competition.
If you are looking for a lender that provides exceptional service, Belco Community Credit Union offers the most popular mortgage options with low interest rates and great terms. Our Loan Originators can help you select the best mortgage for your needs and answer any questions you may have.