by Maurie Backman | Feb. 11, 2021
Here are a few reasons to choose a different lender for your home loan than the one you're looking at.
With mortgage rates sitting near record lows, now's a good time to apply for a home loan. And if you're ready to take that step, you'd be wise to shop around for offers from different mortgage lenders. Each lender sets its own rates and criteria for borrowers. So while one lender might offer you a particular rate based on your income and credit score, another might come in a bit higher or lower.
That said, there are certain warning signs that a given lender may not be your best choice. Here are a few to look out for.
It's not unusual for different lenders to offer varying mortgage rates. But if one lender offers up a rate that is significantly lower than you've seen from competitors, there's a good chance there's some sort of catch. It may be that you'll need to pay points up front in order to snag that rate. This can make sense in some situations, but not always. Or, it could be that you'll be charged higher closing costs on your loan. Either way, be suspicious when a rate seems too good to be true. If you have three offers ranging from 2.85% to 2.95% and a fourth lender comes in with 2.5%, dig deeper.
Closing costs are the fees you'll pay to finalize a mortgage. They generally range from 2% to 5% of a loan's value. This means that if you're looking to borrow $200,000, you should expect to pay $4,000 to $10,000 to complete your loan. Clearly, that's a huge range. But if you seek out offers from different lenders and one comes back with closing costs that are much higher than the others, it's a sign that you ought to look elsewhere. Similarly, if a lender wants to charge closing costs that amount to more than 5% of your loan's value, you may want to cross it off your list.
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It generally takes mortgage lenders at least 30 days to close on a home loan. That's because there are different steps that need to be taken to finalize a mortgage. These steps include underwriting, where your financial information is verified, as well as a home appraisal, where the value of the home you're looking to buy is determined to ensure that it's high enough to cover your mortgage balance. It's possible for a mortgage to close in under 30 days, but it's rare. And much of the time, it can easily take 45 to 60 days for a mortgage to close. If a lender tells you that your loan will close within 14 days or something similarly unrealistic, then you have every reason to be suspicious -- and perhaps find another institution to borrow from.
In the course of your mortgage shopping, certain red flags might arise. Pay attention to them so you don't wind up pursuing a home loan that falls through or costs you more money than necessary.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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