Getting a Mortgage? 15 Things to Know Before Choosing a Lender

Many financial institutions offer mortgage loans, including banks, credit unions, and online lenders. It's important to find the right loan since your mortgage is a large debt you'll have for a long time.

So, how can you identify which lender is right for you?

Before you make your choice, there are 15 things you need to know to ensure you make the best and most informed decision about what home loan is best in your situation.

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There are many different kinds of mortgages available, but they can be broadly divided into a few categories:

• 15- versus 20- versus 30-year loans: This refers to the repayment term. Loans with longer terms have higher total costs but lower monthly payments.
• Conventional versus government-backed loans: Government-backed loans are insured by a government agency, such as the VA or USDA, while conventional loans aren't. Government loans can be easier to qualify for but come with some up-front fees that conventional loans don't.
• Fixed- versus adjustable-rate mortgages (ARMs): Fixed-rate loans have rates that don't change over the life of the loan, while ARMs can experience rate fluctuations after an initial lock-in period.
• Conforming versus jumbo loans: Jumbo loans are for more expensive homes, and they can be harder to qualify for.

Not all types of lenders offer all these different loan options. If you want a particular loan type, such as a jumbo loan or a VA loan, you'll need to find a mortgage issuer that offers it.

ALSO READ: 15 vs. 30-Year Mortgage: What's Best for You?

Some mortgage lenders specifically offer loans intended to help certain types of borrowers get into homes. For example, there are lenders with first-time buyer programs that can be easier to qualify for with lower down payments.

If you can find a lender that offers a loan that will make it easier for you to purchase a home, that mortgage provider may be the ideal fit.

Your credit rating is a key factor in mortgage loan eligibility, but not all lenders have the same minimum score requirements.

Some mortgage providers specifically cater to borrowers with excellent credit, while others have bad-credit loans available.

You'll want to find a lender that routinely provides loans to people with your credit profile so that you don't apply for a mortgage and get denied or end up with a loan that has a higher rate than you should pay given your stellar credit score.

ALSO READ: What Credit Score Do I Need for a Mortgage?

Debt-to-income ratio also affects loan eligibility and interest rate. It refers to debt (including your new housing costs) relative to income.

Some lenders are more forgiving in the amount of debt they'll allow you to have while still qualifying for a home loan.

If you owe a lot of money or are borrowing a lot for your home, you may need to shop around carefully to find a lender that will approve you for a mortgage at an affordable rate.

Every homebuyer must cover closing costs, which are up-front fees that must be paid when purchasing a property. But some of these costs -- including mortgage origination fees -- can vary substantially from one lender to the next.

You don't want to pay unnecessary fees, so be sure to check each potential lender's cost estimates carefully to see how much each different mortgage provider will charge you for your loan.

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Points can be used to buy down your interest rate. You essentially prepay interest when you buy them, which can make your loan cheaper over time but require higher up-front costs.

If one lender is charging you points for a loan and another isn't but is offering you the same rate, the first loan is much more expensive.

Be sure you're comparing apples to apples and that you understand whether buying points makes sense for you when you take out a home loan.

ALSO READ: What Are Mortgage Points and How Do They Work?

A down payment is money you must put down to purchase a property.

Traditionally, borrowers had to put 20% down, but many lenders now allow you to put down much less. Some loans don't require any down payment, while others let you put down as little as 3%. While low down payment loans usually come with added costs of private mortgage insurance, that's not necessarily the case with every lender.

If you don't have a substantial sum to put down, you'll want to shop carefully to find a lender willing to offer a low down payment loan with the lowest possible added costs and the best rate.

ALSO READ: What Is Private Mortgage Insurance?

Some lenders require you to have a certain amount of money in the bank to qualify for a home loan. You may need to prove you have the cash to cover several months of mortgage payments.

If you can't meet this requirement, you'll need to shop around for a lender that doesn't impose it.

Interest rate is obviously a key factor in choosing a mortgage lender. Your rate is the cost to borrow. A higher rate means your loan will be more expensive over time and have higher monthly payments.

Most lenders will provide rate quotes with minimal financial information and without putting an inquiry on your credit report -- which could affect your score. If you get several quotes, you can eliminate mortgage providers that charge more than competitors.

A growing number of lenders allow you to complete the entire loan application process online -- including sending over financial documentation and potentially even signing loan paperwork.

Others, however, require you to work with a mortgage broker you meet with in person. You'll need to think about whether you want extra help from a professional you talk to live or whether you'd like an all-digital loan experience.

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It's very common for mortgage lenders to require you to add the costs of property tax and home insurance onto your monthly housing payment.

This money is collected and put into an escrow account. Then, lenders use it to pay the property tax and insurance bills that come due once a year. You may also have to make several months of these payments up front to put into your escrow account.

If you'd prefer to handle taxes and insurance yourself, you'll want to look for a lender that allows you to waive escrow. And you'll want to find out whether the lender charges you to do this and, if so, how much that costs.

ALSO READ: What Is Mortgage Escrow and How Does It Work?

It can take weeks or even months from the time you apply for a mortgage to the time you close on a loan and can complete the purchase of your home.

Some lenders are faster than others at getting to closing. If you're in a hurry to buy a property or you want to make a more competitive offer with a shorter timeline to buy, you'll want to ask lenders you're considering working with exactly what their timeline looks like.

Since you'll be paying your loan for years, you don't want a lot of hassle from your lender. So, find out whether they have a good or bad reputation among current customers.

If you read a lot of reviews talking about serious problems, such as unexpected fees or misapplied payments, you may want to steer clear.

ALSO READ: How to Choose the Best Mortgage

You'll want to make sure you have flexibility to pay off your mortgage early if you refinance or happen to come into extra cash. So, before agreeing to take out a mortgage from a lender, make sure the ones you're looking at won't charge you any prepayment penalties.

Many mortgage lenders resell the loans they make on the secondary market. This could mean your loan ends up transferred to a different servicer -- which may not have a solid reputation for customer service.

Lenders won't necessarily always give you assurances that they'll keep your loan on the books and manage it internally, but it's worth asking -- or researching the lender's common practices for what they do after issuing loans.

This is especially important if you're treating customer service as a key priority when picking the lender you borrow from. There's no sense in paying more for a loan from a company with a better reputation for taking care of customers if that lender just turns around and sells the loan anyway.

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Knowing all these facts about mortgage lenders you're considering will help you ensure you don't end up with a large loan you regret taking out.

The answers should hopefully guide you toward finding an affordable lender that provides good customer service, so your repayment process is as easy as possible over time.

Since you'll be spending decades dealing with your mortgage lender, it's worth the effort to find the right one.

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