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How to find the best mortgage lender

 

Looking for a home?

 

This can be one of the most exciting and stressful purchases of your life. The real estate market hasn’t made it easy for buyers over the past few years either, with surging prices, bidding wars, and low inventory. And while pricing is finally dropping and the fierce competition, dare we say waning, the market now faces rising interest rates. This will help us out with inflation (we hope), but it doesn’t fare well for first-time buyers or anyone really looking for a new mortgage. This means finding the best mortgage lender is more critical than ever. Buyers often put more time and energy into finding the right real estate agent, the right lawyer, or even a home inspector. But the best mortgage lenders will save you thousands of dollars and ensure your quality of life lives within your means.

 

According to the Canada Mortgage and Housing Corporation (CMHC), the cost of your home, including mortgage and utilities, shouldn’t be more than 35% of your gross monthly income. Figuring out that number will inform you what houses you can afford and how much money you need to borrow. In today’s market, homebuyers need 5% of the price as a down payment if the home costs $500,000 or less, and 10% for anything over $500,000. You’ll need 20% if you want to avoid paying mortgage insurance. Most people don’t have anywhere near the cost of a home saved, making loans and mortgages just a part of life. All banks and mortgage brokers have online calculators to help you determine how much you can afford. But there isn’t a readymade tool to pick the best mortgage lender for you.

 

What types of lenders are there?

 

There are 6 main types of mortgage lenders available to home buyers. The right fit for you depends on your service level expectations, the amount of work you’re willing to put in, the budget you require, and if your loan faces any types of restrictions.

 

The best mortgage lenders…

 

• Find and build the best mortgage for you after looking at a variety of mortgages
• They personalize the process, recognizing the unique needs of each client.
• It’s not a one size fits all so using lenders that employ the same strategies and methodologies for all their clients is not going to represent you well.
• The best mortgage lenders are available and willing to answer all your questions.
• They provide guidance throughout the entire process.
• They keep you informed every step of the way, facing setbacks and changes together.
• Their main objective should be to help you buy your home while educating you all along the way.
• The best mortgage lenders understand the precarious nature of real estate deals and manage your loan with urgency when required and pay attention to all the details.

 

The Pros and Cons of different lenders

 

Direct lenders are one of the most common. These are banks, credit unions, online entities, and other organizations. They provide mortgages directly to borrowers.

 

Pros

 

• From start to finish you deal with just one organization.
• In most cases, your service agent is the same person from application to close.
• They will offer a variety of loan products, frequently with competitive rates and fees.

 

Cons

 

• Every institution has different rates and terms and will never tell you when rates drop or that another lender has a better rate offering.
• It’s up to you to do your homework, comparing rates and products to pick the best mortgage lender for you.

 

Mortgage brokers are licensed professionals who research the lending market to match up borrowers with lenders. The lender will pay the mortgage broker, so it doesn’t cost you anything unless there are credit or income issues, then you will know upfront any additional costs.

 

Pros

 

• You can count on brokers to shop the rates, looking at multiple lenders.
• They will present you with multiple loan and rate options with just one application and credit bureau, saving you critical time in the home-buying process.

Cons

 

• The broker is a go-between and as such earns a commission. 
• Make sure you use a broker with experience as the rates are lower than a new agent and they have more access at better rates than someone new

 

Wholesale lenders

 

Wholesale lenders work with third parties like brokers and offer their products at good discounts. They never interact directly with borrowers and rely on brokers to facilitate the application and approval process.

 

Pros

 

• Your loan qualifications may be less strict, increasing your chances for approval.
• Wholesale usually means discounts!

 

Cons

 

• You must trust your broker to navigate this deal entirely for you.
   

Correspondent lenders

 

A Correspondent lender creates their own fund for loans and once they are secured, sells them quickly to other bigger lenders on the secondary mortgage market.

 

Pros

 

• They offer a wide range of loans.
• You may get a better rate.

 

Cons

 

• It can be hard to know who your loan is with and hard to keep track of after your loan is sold.

 

Portfolio lenders

 

Typically, a portfolio lender is a credit union or community bank. They create funds from their client’s money and keep the loan with their institution.

 

Pros

 

• Often portfolio lenders can work hard for borrowers who have difficulty obtaining approval and help them qualify for a loan.
• Keeping it local and working with an organization in your community.

 

Cons

 

• Depending on the lender, loan amounts may be limited.
• Potential for less flexibility and unfavorable terms, some are closed to payout early.
• Hard money lenders
• These lenders are just investors and primarily concerned with making a quick profit. 

 

Pros

 

• If you don’t meet the requirement for a conventional mortgage, you may qualify here.
• The deal will go quickly with approvals and funds in your hands before you know it.

 

Cons

 

• Rates may be a bit higher than other sources
• Prepayment options may be limited to just a sale clause

 

Different types of loans

 

There are generally 5 main types of mortgages on the market. These include conventional, government-backed loans, and fixed and adjustable-rate mortgages, or reverse mortgages. Let’s take a quick peek at what type of borrower matches best with each loan.

 

• Conventional loan – You have a good credit score. You have 20% down
• Government-backed loan – Your down payment is less than 20%
• Fixed-rate mortgage – You like a secure and predictable, set monthly payment for the entire mortgage, and the rate is locked for the whole term.
• Adjustable-rate mortgage – Your mortgage is set based on the Bank of Canada or prime banking rate, which can adjust when the Bank of Canada changes it.  Last year saw the most increases in history as the Government was trying to curb inflation.
• Reverse Mortgage- when you are over 55 years of age and income is limited and you want to stay in your home, this mortgage allows for no payment to be made but gets added to the principal when you sell or move out of the house.

 

Getting Preapproved

 

Now that you’ve learned about the distinct types of lenders and loans, it’s time to embark on the pre-approval process. This will confirm what your budget can be, allow you to make offers with confidence, and speed up the purchasing process. Spend the time talking to a few lenders, like the bank you already work with, a mortgage broker, and maybe a credit union. This way you’ll be sure to get a good array of options and rates.

 

To start you need to gather some information so a lender can do a full review of your credit score. Be ready to show:

 

• Government-issued photo ID
• Social Security number(s)
• All addresses of places you have lived for the past two years with property owner reference information.
• Pay stubs from the past month.
• Federal Tax Returns.
• Bank statements for the past 2 months.
• A complete list of all your financial accounts, including any retirement savings plans.
• A complete list of all your debt.
• Employment history, and reference from your current employer.
• Information on your down payment, including how much and where its coming from.
• Information on any recent negative financial actions like liens, bankruptcy, or collections.

 

Be warned, a pre-approval is not final. It provides the landscape for your future mortgage. If things change financially between the pre-approval and the approval, your mortgage opportunity may change too. Typically, a pre-approval is good for 90 days, but stay in touch with your lender and always be prepared to adjust.

It’s time to close the deal!

 

You’ve found that house, you’ve done your homework and found the best mortgage lender for you, now it’s time to pay attention to all the details. We’re talking big money here, so every line item has an impact on your financial health. Look closely at your interest rate and your monthly payment. Does it include property tax, or do you have to put that aside as well? Know what your lender fees are and how much closing the deal is going to cost. You’ll need to pay a lawyer and maybe land transfer tax. Finally, be confident in your down payment amount, can you stretch to 20% and avoid those mortgage insurance premiums?

 

Once all the paperwork is signed, and there is a lot of paperwork, it’s just the packing, the move, and the unpacking. All fun days are ahead!

 

Contact a highly trained, mortgage professional at Mortgage Architects Bennett Capital Group to get started today.