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7 Tips for Finding the Right Mortgage Lender for First Time Borrowers

7 Tips for Finding the Right Mortgage Lender for First Time Borrowers

If you’re looking to buy a home and are a first-time borrower, the process may seem daunting at first. The trickiest part is usually getting the financing you need since you want to be sure that the deal you’re getting is the best for you. Remember, even small variations in the fees and rates charged by different lenders can have a significant impact. Here are seven tips you should follow to get the right mortgage lender.

Review Your Credit Reports and Score

Before you even think of engaging a mortgage lender, it is important that you review your credit reports first. Your credit’s health determines your bargaining power, and also whether you will be approved for a home loan in the first place. You can get your credit reports from the three main credit bureaus – TransUnion, Experian, and Equifax. Alternatively, you can visit annualcreditreport.com, which is the only site authorized by law to provide credit reports, albeit once per year.

Also, check your credit score. Most credit card issuers will provide this information for free. In most cases, lenders will require a minimum score of 620 before they can approve your loan. However, some government-owned lenders will let you borrow with a score of as low as 500. Even then, it’s important that your score is high because it means your loan will be more affordable.

Ensure All Errors in Your Credit Reports Are Addressed

After you’ve gotten your credit reports, assess them to ensure that there are no errors that can hurt your ability to get credit. For example, check your personal details such as name, social security number, and address to ensure they are correct. Due to the prevalence of identity theft cases, you should also check whether there are other fake accounts opened under your name. If there are any errors, dispute them immediately with the relevant institution and follow-up until the issue is addressed.

Also, check whether your credit score accurately reflects your current financial situation. For example, if you’re a first-time borrower, and your payment history with your credit card has been perfect or near-perfect, there’s cause for alarm if your score is too low.

Gather the Required Documents

Before you begin to consult different lenders, you want to ensure that your paperwork is in place. This is to avoid any inconveniences or delays that might happen just when you’re about to close a deal with a lender. Some of the crucial documents you need to have include a credit report copy, tax returns, photo ID, bank and asset statements, written renting/purchasing history, and pay stubs (1099s, W2s, etc.).
If you’re getting some funds from another person to aid in purchasing your home, you should also specify that in writing. In this regard, you should specify the nature of your relationship with the person, and confirm that the funds are a gift, and not a loan.

Decide the Type of Mortgage You Want

The structure of a loan will determine the lifetime costs and interest you pay. Since lenders have different products and services, understanding the different types of mortgages will be crucial when choosing a lender. Here’s what you need to know about the types of mortgages.

Different Terms: Mortgages differ in payment schedules. The most common terms are 15 and 30 years, but you can also get other terms depending on the lender. The terms of a mortgage loan determine the monthly payments and the total interest you pay. For example, if you’re refinancing a home loan in Arizona as of the 25th January 2021, the average interest rate for a 30-year fixed mortgage loan is 2.878% while that of a 15-year fixed mortgage loan 2.333%.Fixed-rate: This is a mortgage loan that’s interest rate remains fixed over the loan’s lifespan.Adjustable-Rate: A mortgage loan with an adjustable rate will have a “teaser” interest rate at the beginning stages of the loan and then have a variable rate afterwards.Government-Backed Mortgages: These are mortgages that are offered by approved lenders, but secured through the government. They can accommodate low credit scores, and the down payment is also low compared to conventional loans.Conventional Mortgage: This is a mortgage loan issued by a private lender and neither guaranteed nor insured by the government. You’ll need a solid credit score to acquire these loans.

Ask for Recommendations

If you’re still unsure about the type of mortgage you want, you can ask for referrals from your family and friends. Be keen to hear which lender they used, the treatment they received, the terms they got, and any challenges along the way.

If you feel that their situation is similar to yours, you can use the information to work out a similar deal with your lender. Word of mouth is still a reliable way to get a trustable lender.

Vet all Potential Lenders

By now, you already have an abundance of knowledge about what you want, and it’s time to start looking at specific lenders. During this process, you can compile a list of all lenders that meet your requirements and then compare them.

Look closely at things like rates, reputation, terms, conditions, and all other criteria specific to you. Also, check whether they are licensed as you want to deal with a lender in good standing with the law.

Brace Yourself for Negotiations

Your aim is to get the best possible deal, and so it’s advisable that you choose a lender you can negotiate with. During the negotiations, be prepared to leverage on competitors’ rates while asking for better loan terms.

The best way to prepare for negotiations is to research more on the market, so by the time you get to your lender, you have an abundance of knowledge about how the mortgage process works.

The Takeaway

Finding the right mortgage is the first step in the home-buying process and is a crucial one. Don’t be in a hurry to commit to a lender without evaluating all your options. After all, this is a loan that you’re likely to serve for the next thirty years, so you cannot afford to go wrong from the word go.


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by Marissa Collins //

Opinions expressed by contributors are their own.