When you’re in the market to buy a home, you’re probably going to have to get to know a mortgage lender. And they’re going to get to know your finances inside and out.
What is a mortgage lender and what role do they have in the homebuying process? Here’s what you need to know before you buy a home.
What is a mortgage lender?
A mortgage lender is a bank or company that provides home loans to borrowers. Some lenders also offer auto loans, personal loans or student loans. Some offer mortgages and other home-related loans. Sometimes, one lender can offer many different types of loans.
A mortgage lender provides you with the funds to buy your home. Every month you make payments that go towards paying off your loan balance.
You can shop for different mortgage lenders to compare loan terms and identify which ones offer the best rates, fees and repayment terms for your situation. Try getting pre-qualified from a few different lenders to see what offers fit best for you.
Who are the biggest mortgage lenders?
There are various types of mortgage lenders, from local and regional lenders to big brand-name financial institutions. Lenders can be banks, credit unions or online only. The best lenders offer different incentives, such as lower APRs or zero fees. This means you might have a different set of criteria at one lender compared with others when shopping around for the right match.
Wells Fargo was the largest home loan lender by volume in 2019. The San Francisco-based bank is a full-service operation, taking deposits and offering loans of all shapes and varieties. Wells has a number of programs in the nonconforming space to help first-time homebuyers, applicants with low credit scores or those who need discounts on closing costs.
You might know about Quicken Loans without ever having to need a home loan. That’s because they run loads of TV advertisements to catch your attention. They’re one of the largest loan originators in the nation.
Their credit requirements to qualify for a home loan are somewhat relaxed. For an FHA Loan, you need a 580 credit score and 3.5 percent down (that same 580 score is required by Quicken even if you put 10 percent down, even though the FHA requirement is a score of 500). Conventional loans are also offered, where you’ll need at least a 620 score.
If you’re looking for a mortgage lender at a traditional bank, Chase may be the answer. Chase offers conventional, FHA and VA loans. They also offer deals when you get a Chase mortgage, like $500 for completing a homebuyer course and reduced personal mortgage insurance, or PMI. You might also qualify for $2,500 towards your home purchase with the Chase Homebuyer Grant.
While these are some of the biggest and most popular mortgage lenders, it’s a good idea to compare many different lenders before applying to one.
Is it better to get a mortgage from a bank, mortgage company or an online lender?
There’s no right answer to this since every lender offers different features and terms. But you should compare many lenders based on:
- Interest rates: The lower the interest rate, the less you have to pay on your principal, or original loan amount. While your rate is largely based on your credit score, credit history and debt-to-income ratio (DTI), the rate you are offered will vary based on the lender you choose.
- Ease of communication: Can you make payments online, over the phone, through an app or another way? Does your potential lender contact you through emails or text? The more your lender opens up the communication channel, the easier it’ll be for you to stay on top of mortgage payments. Missing a mortgage payment not only causes your credit score to drop but could lead to a default loan and foreclosure on your home.
- Fees: Sometimes lenders will roll fees into the home loan rather than have the borrower pay them upfront through closing costs. Some fees can be negotiated, but many can’t.
- Down payment requirements: Your down payment amount might be based on a factors, like your creditworthiness and DTI. Compare lenders to see which ones have affordable and flexible down payment requirements.
Not all banks, credit unions and online lenders have the same requirements or the same terms. Make sure to review multiple lenders before you choose one.
How to find the best mortgage lenders
There are plenty of mortgage lenders to choose from. Compare banks, credit unions and online lenders to see which ones offer the lowest interest rate, fewest fees, and most friendly down payment requirements.
There might be other factors in your decision unrelated to finances. For instance, do you want to be able to visit your lender to talk about your loan in-person? If so, a local bank or credit union might be better for you. If you prefer to use an online lender for easy application and approval, you may not need to look at traditional banks and credit unions.
Since there are so many different options for mortgage lenders, you’ll want to tailor your search to your specific needs. Remember, not all lenders offer the same loan types, so you’ll want to factor that into your criteria as well. Finding the right mortgage lender isn’t necessarily what’s best for everyone, but rather, what’s best for you.