4 steps to picking a mortgage lender

Shopping around for the right mortgage lender can feel complicated. In light of that, here are a few tips on picking the right lender for you. (iStock)

When you're looking for a home loan, one of the most common pieces of advice home buyers will get is to shop around until you find the right mortgage lender. However, unless you know what to look for, comparing mortgage companies can be stressful.

To that end, below are four steps for picking a mortgage lender. Keep reading to learn more about weighing your loan options.

If you think you’re ready to shop around for your mortgage rate, consider using Credible to help you easily compare rates from the comfort of your own home.

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1. Find out what interest rates you qualify for

The first step in shopping around for a mortgage is to compare rates. After all, lower interest rates often translate into lower monthly payments and less interest paid over the life of the loan. Plus, even though the rate that you are given will largely depend on the strength of the mortgage market as a whole, it can also vary by lender.

Put simply, different mortgage lenders will offer you different mortgage rates depending on their assessment of your loan eligibility and the strength of your financial profile. For example, those with lower credit scores and higher debt ratios will likely receive higher interest rates. In addition, the interest rate you’re given may vary by the type of lender you choose. Online lenders may be able to offer lower rates because they don’t have the same overhead costs as brick-and-mortar mortgage lenders.

In addition, you also want to consider the type of interest you're being charged. Your initial interest rate will be lower if you get an adjustable-rate mortgage. However, it will change over time and will rise if interest rates go up. With a fixed rate mortgage on the other hand, you may be given a slightly higher interest rate but you'll have the security of knowing that it will stay the same for the life of your loan.

To see what's available, you can visit an online mortgage broker like Credible to get personalized rates within three minutes without affecting your credit score.

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2. Determine the loan fees

It’s important to understand that interest rates aren’t the only factor to consider when you’re searching for the right lender. It’s also crucial to consider the fees that you’re being charged.

For instance, some lenders will charge a loan origination fee, which helps them to cover the costs associated with processing your home loan. Those who make less than a 20% down payment on their home should also expect to see an added fee for private mortgage insurance (PMI) on their quote. Notably, though, PMI fees are unique to conventional loans. Other types of mortgage programs use a different term for these fees.

If saving money on your mortgage payment is your primary goal, you should do your best to compare all the rates and fees you’re given before deciding on the right mortgage program.

You can use Credible’s online mortgage calculator to determine what your monthly payment could be at a variety of loan amounts.

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3. Ask about down payment assistance programs

Particularly if you’re a first-time homebuyer, you should ask lenders if they are currently participating in any down payment assistance programs. At their core, these programs can help home buyers lower the amount that they need to pay upfront for their perfect home by offering grants or low-interest loans to help cover some of the costs.

Not every lender will participate in these programs so if you’ve done your research and think you might be a good candidate for payment assistance, asking about lender participation can help you zero in on the mortgage company that’s the right fit for you.

Visit ​Credible to get in touch with experienced loan officers​ and get your mortgage questions answered.

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4. When to use a mortgage broker

If the amount of work needed to get quotes from different lenders seems like it might outweigh the loan benefits, you should consider using a mortgage broker. A mortgage broker is an intermediary who will do the hard work of finding the best mortgage lender for you.

In this case, you would give the broker the right to access your financial information, such as your tax returns and credit score. The broker would then shop around for you and connect you with the lender that is giving you the best deal. The broker will also act as a liaison between you and the lender through the entire transaction.

However, keep in mind that this service does not come for free. In exchange for additional service, you will likely be charged a fee. This fee is usually 1%-2% of your loan amount.

If you’re looking to purchase a home in today’s market, you can explore your mortgage options by visiting Credible to compare rates and lenders and get a mortgage preapproval letter in minutes. And to see what your monthly payment could be, consider using Credible's online mortgage calculator.

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