How to Compare Mortgage Lenders

Buying a home is the ultimate American dream. However, this dream can turn into a nightmare if you sign a contract with the wrong mortgage company.

Difficulty: Moderate

Instructions

How to Compare Mortgage Lenders

1. Gather information on several mortgage lenders. You can do this online, by calling lenders and requesting information, or by stopping into a lender's place of business to pick up brochures and information on loan products.

2. Compare and contrast mortgage rates offered by each lender. The first thing that you should look at when comparing mortgage lenders is how much interest they charge. Look at both ARM and Fixed Rate Mortgage interest rates to find the best overall interest rate. Also look for potential planned increases in interest rates after an introductory period if you are considering an ARM.

3. Compare and contrast the lender fees offered by each lender. Lenders will usually charge a loan origination fee. This fee can be a set rate or it can be based on points of the mortgage amount. A reasonable origination fee is 1 point, however, if you have less than perfect credit you may opt to pay more points to lower your mortgage interest rate. If you feel that a lender is charging an excessive origination fee you may want to consider a lender like Quicken Loans that charges a flat fee under $600 for their origination fee on all of their mortgage packages.

4. Compare and contrast the third party fee policies held by each lender. Most lenders will require that you pay certain third party fees up front, while others will write these fees into your loan package. The most common third party fees include appraisal fees, inspection fees, title fees, attorney fees, etc.

5. Compare and contrast mortgage options offered by each lender. There are many different types of mortgages that you can apply for. Use your employment history, FICO score, and preferences to find the mortgages that fit your needs the best. For example there are: fifty year mortgages for people who want to buy a larger home on a smaller budget, fifteen year mortgages for people who want to pay off their homes faster, one-hundred percent loans for people who don't have money for a down payment, and no documentation mortgages for people who can't or don't want to document their assets and liabilities.

6. Compare and contrast the terms set out by each lender. To do this look for pre-payment penalties, conversion clauses, interest-rate caps, payment caps, default options if you can't pay your mortgage, etc. Make sure you understand everything that the lender will expect from you and make sure you understand what options are available to you. If you have any questions make sure that you talk to the lender to clear things up.

7. Weigh the pros and cons of each lender to find the best mortgage and lender for you. To do this create a list of the features that you both want and need in a mortgage. Then compare each lender's options against this list to find the lender that offers a mortgage that closest matches your needs.

Tips & Warnings

• Don't be afraid to ask questions.
• Research is your best weapon against lenders who want to rip you off.
• Talk to local realtors to see if they can refer you to a good lender.
• Not all mortgage programs are right for everyone.
• There are mortgage scams out there so be careful.
• If you are unsure about a mortgage company's reputation check out their business license with the state they are licensed in and check their status with the Better Business Bureau.