Tips for Choosing a Mortgage Provider

You’re getting close to pulling the trigger. You’ve been looking at houses, and you just made an offer on one. Or maybe you’ve been monitoring interest rates, and you think now is the time to reduce your 30-year mortgage to a 20-year. Your next step is to find a mortgage lender that offers a great rate. Where do you start?

Most people research mortgage providers and rates in one of four ways: the newspaper; online financial-rate aggregation sites; online lending exchanges; or through personal referrals. Each sourcing method has its own pros and cons.

Newspaper Typically found in the weekend business section or online version of the local paper, these listings display mortgage rates from a select number of area lenders. The advantages of newspaper comparisons is that you get a good idea of average mortgage rates in your area. The downside is that these rates might already be out-of-date, since it takes a couple of days to publish the rates. What’s more, lenders often pay to be included in the newspaper listings, so you only have a limited number of lenders to compare.

Financial-rate aggregation sites More mortgage shoppers are going online to research mortgage rates and providers. Financial-rate aggregation sites like Bankrate.com offer detailed charts of mortgage rates in your area, information about where rates are headed and articles about financial topics. While these sites offer more details about rates for easier comparison as well as a greater number of lenders than newspapers, the lenders listed also pay to advertise their rates, so you’re getting a subset of available lenders. Another concern: Some lead-generation and mortgage companies run several Web sites designed to ostensibly compete against one another but which are really designed to play good-cop, bad-cop to gain your trust and win your application. Also, in order to stand out, lenders tend to publish their very lowest rates, which might not be applicable to the majority of buyers.

Online lending exchanges At online lending exchanges like LendingTree.com, you not only can research rates but get actual quotes from three or more lenders based on information you provide about your property and your personal credit. The advantage of this approach is that you get at least three competitive offers – customized to your situation and preferences – with one application. However, these quotes are conditional. After full underwriting, rates, terms and fees could all change. And the lead-generation companies could sell and resell your lead information.

Personal referrals Most mortgage shoppers find their mortgage providers through personal referrals: friends, realtors or builders. Note that realtors are obligated by federal law to give buyers more than one mortgage-lender referral. The advantage of personal referrals is that you are theoretically referred to a lender with a positive track record. However, just because a particular lender might be better for one person doesn’t mean the lender will be the best for your own financial situation, credit profile and type of home. Also, mortgage companies affiliated with builders or real-estate brokerages might not always be in your best interest – though realtors and builders can have financial incentives to push them.

Wherever you find your mortgage lenders, be sure to follow a few simple tips.

1. Test the waters. Don’t be afraid to go through the initial application and underwriting process with one or more lenders in order to define the type of loan that’s best for you. The initial information you provide won’t be much more involved than a credit check, and you’ll get a better feel for the fixed or variable loan term, points, down payment and lock term that’s best for you. Plus, the good-faith estimates you receive from lenders will help you better compare mortgage providers. One suggestion if you follow this course is to order your own property appraisal. Lenders typically order appraisals on your behalf, and though you pay for them, they usually won’t let you use them for other lenders.

2. Don’t fixate on interest rates alone. Most people focus on mortgage interest rates when choosing mortgage providers, and for good reason. Rates have a big impact on your monthly payment. But ignoring other hidden mortgage costs could lead you to choose the wrong provider. Consider other costs like escrow waiver fees and lender fees like origination fees, underwriting and application fees.

3. If it sounds to good to be true, it probably is. In general, there shouldn’t be huge differences among the rates of mortgage providers – at least those quoted on the same day. After all, there are a finite number of mortgage banks that back the mortgages. A much lower quoted mortgage rate either means that the provider is willing to forgo profit or – more likely – is trying to grab your business with a great rate that will most likely go up once the application goes through full underwriting.