How To Choose A Lender When Buying A Home

Although many parts of the mortgage process are the same across all lenders, there are some differences that can affect the fees you are charged and the service you receive that are worth considering when you shop around.

how to choose a lender when buying a home

There is no set dollar amount of income you need to have to buy a home. However, your income does play a significant role in how much home you can afford. Lenders look at all of your sources of income when they consider you for a loan, including commissions, military benefits, child support and more.

Ask your lender how much income you need to buy a home and which streams of income they consider when they calculate your total earning power. Finally, ask your lender what documents you need to give them to prove your income, such as W-2s, pay stubs, bank account information and other materials.

The often-quoted 20% figure has to do with avoiding private mortgage insurance (PMI), which protects your lender in the instance that you default on your loan. You can cancel your PMI on a conventional loan as soon as you build 20% equity in your home, and your lender will automatically cancel PMI as soon as you reach 22% equity in your home.

If they do allow you to pay off your loan faster, you should ask whether there are any prepayment penalties. Mortgage lenders often charge these fees to dissuade borrowers from making extra payments on their loans, refinancing their loans at a lower rate or selling their home before the loan is due.

• Hard prepayment penalty: Borrowers are required to pay fees regardless of whether they sell their home, refinance it or make a large payment to pay it off.

If your mortgage lender charges prepayment penalties, ask how much they cost. How prepayment penalties are charged varies among lenders. They can be very expensive and can make early payoffs costly.

People now spend a higher percentage of their income on a home than 20 years ago. Interest rates can change daily. There are more kinds of loans to choose from, so there is more to figure out before making a decision that will have a huge impact on your finances.

If you need more help finding a home loan, the U.S. government Federal Trade Commission website has a page devoted to helping consumers learn how to shop for a mortgage. Additionally, these sites are some of the reputable financial advice websites that rank and review mortgage lenders:

Direct lenders work directly with homeowners to originate and underwrite loan products with their own funds. Many retail lenders fall under this category, as they don't involve third parties or middlemen in the mortgage loan origination process.

Another critical step in the home buying process is determining which type of loan is best for you. There are many different types of mortgage loans to choose from, and each loan has its requirements, advantages, and disadvantages.

Conventional mortgages are the most common type of home loan. They're originated and serviced by private lenders, such as banks and credit unions, and have fewer restrictions but stricter credit score and debt-to-income ratio requirements than government-issued loans. To qualify, borrowers generally need a minimum credit score of 620 and must provide at least a 3% down payment.

Shopping around to compare offers from multiple lenders could save you thousands of dollars in the long term. Request quotes from at least three lenders so that you have a range of options to choose from, and use our mortgage calculator to get an idea of how much you can expect to pay for a mortgage.

A home will quite likely be the biggest purchase of your life. Before filling out the loan application, borrowers should ask plenty of questions to ensure they're making the right decision. For example, you could ask your lender:

Consider your credit score limitations when choosing a mortgage lender. If your score is less than stellar, you may not be able to do business with every single lender and may not qualify for certain types of mortgage. It might help to contact some credit repair companies for help if your credit score severely impacts your homebuying capabilities.

NewsletterMoney MovesEvery Saturday, Money dives deep into the world of real estate, offering a fresh take on the latest housing news for homeowners, buyers and daydreamers alike.Sign UpBy clicking "Sign Up" I agree to receive newsletters and promotions from Money and its partners. I agree to Money's Terms of Use and Privacy Notice and consent to the processing of my personal information.Sign UpNewsletterSubscribe successful!You will now receive Money's newsletter at Reply anytime to let us know how we can improve. Enjoy!Make sure we land in your inbox, not your spam folder. We just sent you a welcome email. Sometimes email clients send our first email to a spam or promotions folder. If you don't see us in your inbox, check these folders, then drag and drop the welcome email into your inbox. How to Choose a Mortgage Lender FAQWhat credit score do mortgage lenders use?chevron-downchevron-upThe two most common credit scores that mortgage lenders use to evaluate borrowers are the FICO Score and the VantageScore. The former is calculated by the Fair Isaac Corporation, whereas the latter was jointly developed by the three major credit report bureaus.

How much house do you need? What down payment can you afford to make? How will a mortgage payment affect your monthly budget? These are issues to think about when taking stock of your finances. Having a thorough understanding of your own situation can help you ask lenders more-informed questions when the time is right.

Ask the lender and be sure to read the fine print about any prepayment penalties on your loan. A prepayment penalty may apply if you refinance the loan before the loan term is up, or when you otherwise pay off the loan ahead of schedule.Loans without a prepayment penalty are a good choice if you think you may refinance the loan at some point.

The home-buying process is notoriously stressful and oftentimes confusing, especially if you're taking on a mortgage to finance most of your purchase. There's a lot to learn when it comes to the home loan application process, so CNBC Select rounded up a list of five of the best mortgage lenders to help you streamline the process and find a lender that best suits your needs.

However, it's important to keep a few things in mind when you're looking to apply for a mortgage. First off, mortgage interest rates can fluctuate quite often, however, the rate you are likely to receive will heavily depend on your location, credit score and credit report. While you can take a look at each lender's website to get an idea of what interest rates they charge, the best way to get a solid idea of what you will be charged is to provide the necessary information to check your rate.

Some lenders may waive certain fees or provide discounts on fees. It's always a good idea to ask which fees have the potential to be waived but when you decide to move forward with a particular loan from a lender, prepare yourself to account for these additional charges.

Lastly, it's important to do your homework so you can be sure you're choosing the lender that can suit your needs whether you're a first-time homebuyer or purchasing an investment property. Homeownership comes with a learning curve, but we've included an FAQ section below to help you familiarize yourself with some aspects of the process, but if you have other more specific questions, reach out to a representative or an advisor at your desired lender.

This lender offers conventional loans, FHA loans, VA loans and jumbo loans but not USDA loans, which means this lender may not be the most appealing for potential homebuyers who want to make a purchase with a 0% down payment. Rocket Mortgage doesn't offer construction loans (if you want to build a brand new custom home) or HELOCs, but if you're a homebuyer who only plans to purchase a single-family home, a second home, or a condo that's already on the market, this shouldn't be a drawback for you.

This option is made for those who can only afford a smaller down payment, but it also comes with stricter income requirements compared to their other loans (the annual income used to qualify the customer must not exceed 80% of the Area Median Income (AMI), according to the Chase team). If you meet the income requirements for the DreaMaker loan, this option could be very attractive for those who would prefer to make a down payment that's as small as possible so they can have more money reserved for other homebuying expenses.

In addition to this loan option, homebuyers can also apply for a jumbo loan (FHA loans, VA and USDA loans are not available through this lender). Customers can also choose between fixed-rate and adjustable-rate mortgages, and 15-year, 20-year and 30-year loan terms.

Who's this for? It's sometimes tough to find lenders that offer USDA loans in addition to other standard mortgage options, but PNC Bank includes USDA loans in their lineup. This lender also offers conventional loans, FHA loans, VA loans, jumbo loans and a PNC Bank Community Loan, which is a special program that allows homebuyers to put down as little as 3% (without paying private mortgage insurance) while still choosing between fixed-rate and adjustable-rate mortgage terms.

This lender also offers a special loan option catered to medical professionals who are looking to buy a primary residence only. With this loan, medical professionals can apply for as much as $1 million and won't have to pay private mortgage insurance (PMI), regardless of their down payment amount. They can also choose between fixed-rate and adjustable-rate terms.

PNC Bank offers online and in-person mortgage application processes, which can be a plus for homebuyers who don't live near a PNC Bank location but still want to apply for a loan. You can get online pre-approval in as little as 30 minutes as long as you have all the documentation on hand and similar to most other lenders, PNC Bank has a minimum credit score requirement of 620. 041b061a72