Types Of Mortgage Lenders
Find retail and consumer direct mortgage lenders on Zillow’s mortgage marketplace. Instead of scrubbing lender profiles for their business models, useZillow to discover lenders. You can then find a lender who can provide a loan for your customized needs.
Most lenders are categorized based on the way they acquire or fund mortgages, and how they handle them after closing.
Here is a breakdown of mortgage lenders:
Mortgage bankers:These lenders package and fund loans with their own funds or borrow money from other lenders to originate loans. After closing, they typically sell the loans on a secondary market to investors or agencies such as Fannie Mae and Freddie Mac.
Retail lenders:These lenders offer mortgages directly to consumers. Your bank or credit union is a good example of a retail lender. Most mortgage bankers can also be considered retail lenders.
Consumer direct lenders:Direct lenders originate loans themselves. They can be mortgage bankers, portfolio lenders or correspondent lenders. Consumer direct lenders specialize only in mortgages, as opposed to retail lenders who might offer other consumer banking services, like checking accounts.
Portfolio lenders:They use their own money to issue the mortgage, which provides more flexibility. Portfolio lenders do not sell their loan portfolios to investors or agencies such as Fannie Mae or Freddie Mac. Community banks, credit unions and savings and loan companies can all be portfolio lenders.
Figure Out What You Want And Need From Your Mortgage
The first step you should take when shopping around for a mortgage is to figure out what you need from your mortgage. There are a lot of small details to consider when it comes to choosing a mortgage thats why its in your best interest to have a plan before you contact a lender. Here are all the details you need to think about when deciding on a mortgage:
Obviously, there are a lot of details and specifics that need to be ironed out before you can purchase a house. Having a pretty good idea about what you want before you speak to any lenders will make the whole process smoother.
Prepare The Required Documentation
Before you begin reaching out to lenders, be sure to have all of the necessary documentation in order. This includes:
- Income Verification: pay stubs from the last 30 days, W-2 forms from all employees from the past two years, and contact information of each employer for the past two years.
- Asset Verification: most recent two months’ bank statements .
- Transaction Type: details on the transaction, such as if its a refinance or a purchase.
- Identity Verification: a copy of your current Drivers License and Social Security Card.
While it is good to have your documents prepared ahead of time, your loan officer will also help you through all of the required documentation. Every mortgage company will handle documentation and asset verification a little differently, but most lenders offer online portals that make uploading and managing documents easy.
When evaluating which lender is best suited to meet your needs, it is a good idea to ask about their loan process. Will you be able to complete your loan online? Can you digitally upload and sign documents, or will you need to procure hard copies of everything? These are some important things to take into consideration as they can make the loan process simpler or more difficult.
Also Check: A Mortgage Loan Originator Is Defined As
Dont Use Advertised Rates To Choose A Lender
Plenty of banks and mortgage lenders show their current mortgage rates online. You could easily check these advertised rates in just a few minutes, choose the lowest one, and call it a day.
But its almost guaranteed this strategy wont find you the best deal.
Why? Because advertised rates dont reflect your situation. In fact, online rates almost always represent a perfect borrower one with excellent credit, low debts, and a 20 precent or larger down payment.
Unless you meet these criteria exactly, your own interest rates will be different from the ones you see online.
To find your real best interest rate, you need to apply for rate quotes with at least 3-5 lenders. This involves filling out a pre-approval application and providing:
- Personal contact information
- Personal ID like a drivers license or Social Security number
- Details about the property youre purchasing or refinancing
- 2-3 months worth of bank statements
- Statements for retirement accounts, investments, and other assets
- W-2 or 1099 forms
- Recent pay stubs
Your lender will also run a credit report and pull your credit score. Your credit history has a big impact on the rate youre offered, so polish up your report and score before you apply if possible.
You can typically apply for a rate quote online, which makes this part of the mortgage process relatively quick and easy.
Know Your Credit Score
Your credit score is one of the main factors lenders look at when deciding whether or not to approve a home loan. You can get your credit scores for free from and . While these are just consumer scores, the scores lenders see will be different. It will at least give you a good idea of where your scores are.
Knowing your credit scores is important when choosing which lenders to contact. If you have scores on the lower end, such as 580 or 600, you need to speak to lenders who work with lower credit scores.
Read Also: Does Spouse Have To Be On Mortgage
Shop Around With Mortgage Lenders
The time you spend shopping for the right mortgage lender will be time well spent. Mortgage interest rates vary from lender to lender and finding the best rate available to you can save you money over the life of the loan.
Banks, credit unions and loan associations are traditional sources for mortgages. If youre currently working with a financial institution, inquire about their mortgage options. They may have special offers for existing customers.
Its important to note, if you apply for a mortgage loan with several lenders in a short period of time, your score wont drop with each credit check. Because youre searching for one loan, each of the credit pulls from different lenders will count as one hard inquiry.
Have An Intro Mortgage Loan Meeting
During a meet and greet, you and the loan officer will usually ask each other questions, and the loan officer will use that information to assess your qualifications. That may sound cut and dried, but the meeting should be fluid based on what youre ready to do.
Typically, the loan officer would schedule a meeting focused on comparison shopping separately. If that sounds painful to borrowers who want to get moving, no worries, Koch says. The borrower may be well versed and want to get right to whats most relevant for them, which are the financial and comparison details. But a lot of people need to go over their own questions or cover key topics first.
Want to meet virtually? Some folks are just more comfortable virtually, and thats OK, DeMarco says. Ive closed loans with people Ive never talked to on the phone. Its all via text.
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How Long Does The Preapproval Process Take
The mortgage preapproval process can take anywhere from one to three business days after submitting your application. But after that hard work is done and you get approved, youll have a valuable letter from your lender stating youve been given a green light to purchase a home.
The letter will usually contain a price cap and a deadline, valid anywhere from 60 to 90 days, but typically youll have around a 45 day shopping window for mortgages. You may be able to extend that window with an additional re-verification by the lender.
What Should A First
These are some of the most important considerations for first-time home buyers:
- Setting a realistic budget for your mortgage based on your income and expenses
- Making sure you dispute inaccurate items on your credit score
- Researching first-time home buyer programs in your state if you need down payment or closing cost assistance
- Having an emergency fund set aside for home repairs and other unexpected expenses
- Getting a home inspection to check for serious issues with the property
- Purchasing homeowners insurance to cover the value of your property and belongings
- Finding a real estate agent who can help you narrow your search for the perfect home
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Do You Offer Mortgage Points
Mortgage points are an optional fee that you can pay at closing to buy a lower interest rate and save on the overall cost of the mortgage loan. The cost of each mortgage point is equal to 1% of your total loan.
For example, if you take out a $150,000 loan, you may have the option to buy mortgage points for $1,500 each at closing. Mortgage points are most beneficial for home buyers who plan on living in their home for a long time because they can save tens of thousands of dollars over their loan term.
Be sure to ask your lender when it makes sense to buy mortgage points, how much each point will lower your interest rate and what the maximum number of points you can buy is.
Consider All Other Costs
Buying a house is expensive its an investment in your life and an investment for your future. Beyond the actual price of the home and the down payment that you need to make, there are a lot of other costs that you need to consider before you decide that buying a house is something you want. Here are a few examples of some costs that youll encounter while going through the home buying process:
Closing Costs
Closing costs need to be paid upfront before you move into your new home you must have the money available to cover them all. Generally speaking, you can expect to pay anywhere from 1.5% to 4% of the price of your house in closing costs. The following are examples of some of the closing costs you might have to pay:
- Legal/ notary fees
- Painting and cleaning.
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Learn The True Cost Of The Mortgage
Low advertised interest rates can distract borrowers from the actual cost of a mortgage. In comparing interest rates from different lenders, the figure to focus on is the annual percentage rate, or APR.
The APR, which will be higher than the basic interest rate, represents how much you’ll pay for the loan, including any additional fees charged by the lender. It is calculated on the assumption that you’ll keep the loan for the entire term, so costs are averaged over that period.
Another consideration is “points.” While this term sometimes refers to additional fees that are accounted for in the APR, it can also refer to what are known as discount points. Discount points are an optional upfront payment you can make in return for a lower interest rate. Each point is equal to 1% of your loan amount.
In general, people who plan to live in a home for 10 or more years may want to consider paying points as a way to keep their interest rate lower for the life of the loan . On the other hand, paying a large sum of money for points makes little sense if you expect to move after a short period of time.
Knowing the real cost of a mortgage is not only important for comparing different lenders’ offerings. It can also give you a better idea of how much you can afford to pay for a home without stretching yourself too thin. One very general guideline is that your mortgage payment, property taxes, and insurance usually shouldn’t exceed 28% of your gross income.
Understand Your Mortgage Rate
Mortgage rates are low right now around % for 30-year fixed rate loans. Interest rates and annual percentage rates are for sample purposes only. See our full loan rate assumptions here.
For perspective, the long-time average for 30-year fixed mortgage rates is about 8%. Thats the average since Freddie Macs records began in 1971.
But keep in mind that not everyone gets the same rates.
The best mortgage rates are reserved for top-tier borrowers. Those are people with:
- Stellar credit scores
- Spotless credit reports
- Plenty of assets and savings
- A big down payment
Of course, few borrowers are perfect. Most of us fall somewhere on the spectrum between excellent and so/so personal finances.
Where you are on that spectrum will determine the mortgage rates you qualify for. But knowing how to shop for a mortgage will help you make sure your deal is at the better end of that range.
Experiment with a mortgage calendar to see how down payment, rate, and loan term affect your monthly mortgage payment and how much home you can afford.
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New American Funding: Nmls#6606
Min. credit score
Min. down payment
New American Funding works with down payment assistance programs in 14 states, including California, Texas, Florida and Illinois.
View details
View details
Why we like it
Good for: borrowers who need to be evaluated on the basis of nontraditional credit and those interested in various down payment assistance programs.
Pros
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Uses manual underwriting to evaluate creditworthiness, in some cases.
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Offers full online mortgage application, rate quotes, document upload and loan tracking.
Cons
Min. credit score
NASB offers conventional loans for as little as 3% down.
View details
NASB couples competitive mortgage rates and reasonable fees with a good assortment of loan options.
Pros
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Offers competitive rates and origination fees.
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Considers nontraditional income sources, in some cases.
Cons
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Does not offer home improvement mortgages.
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Doesn’t offer home equity loans and lines of credit.
Min. credit score
Better offers 3% down payments on conventional loans.
View details
Good for: tech-savvy borrowers who prefer an online experience.
Pros
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An online process with human help as needed.
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Makes it easy to see customized mortgage rates.
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Offers an “underwriter reviewed” preapproval letter in as little as 24 hours.
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Appraisal guarantee promises the loan wont change even if appraisal is lower than expected.
Cons
Min. credit score
View details
Pros
Cons
Min. credit score
Get Your Financial Documents In Order
Being a prepared home buyer can save you a lot of time and stress. Below are some of the different types of documents a borrower will need when applying for a mortgage.
Valid Personal Identification
You will need a valid form of government-issued ID. This can be a drivers license, Social Security card, passport or any other state or federally issued ID card. This is needed to verify your identity so your lender can be sure they are lending to the right person.
Proof of Income and Employment
This includes all the common forms of income identification, like W-2 forms, pay stubs from the past few months, recent bank statements and tax returns. Pay stubs will help confirm that you have a stable job and income. Bank statements and other documents help your lender get a good idea of your savings, financial history and habits.
If you are self-employed, providing proof of income may look slightly different for you. You may not have regular pay stubs to show your lender, you can still provide bank statements, copies of your tax returns and even profit and loss statements.
Proof of Assets and Debts
Beyond your bank statements, you will need to provide documentation regarding your assets and debts to your lender. This may include record of any loan payments, mortgage statements and any other documents that show proof of payment toward debts.
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Whats A Good Credit Score For A Mortgage
In general, a 740 credit score or higher will get you the best mortgage rate. However, there are some other benefits to having a credit score this high when youre shopping for a mortgage:
- Your private mortgage insurance cost may be lower. If you make less than a 20% down payment on a conventional loan, youll typically pay private mortgage insurance to cover the lenders investment if you default and they have to foreclose on your home. PMI premiums are lower with higher credit scores.
- You may be approved with a higher DTI ratio. Lenders measure how much total debt you have compared to your income to calculate your DTI ratio. You may be able to exceed the ratio limits in the table above if you have high credit scores.
THINGS TO KNOW
There are some simple steps you can take to boost your credit score before you start mortgage shopping.
Pay off debt 60 to 90 days before you apply. It takes a few months for debt paydowns to reflect on your credit report, so give it a few months if you recently maxed out your cards. In general, keep your total credit use at 30% or less of your total credit limit.
Add or remove yourself as an authorized user. If youre a user on a card with a high balance, getting taken off may help your scores. If you hardly have any credit history, being added as an authorized user may give your scores a nudge upward.
Apply For A Mortgage Pre
Most Canadians think the first step in the homebuying process is to contact a realtor and start looking at homes. This isnât correct. The first thing you should do is apply for a mortgage pre-approval. After all, if you find a home you like, youâll want to move quickly. Being pre-approved for a mortgage removes an extra step in the process.
Being pre-approved also helps you know how much you can afford to spend. You can get a good estimate of how much you can afford with our mortgage affordability calculator. However, the hard limit will always be how much the bank will approve you for â a mortgage pre-approval gives you that.
How long does it take to get a mortgage pre-approval? It can be done within an hour if you have your documentation together. Get in touch with a mortgage broker near you to get started.
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