Homebuyers in America take great care as they tour potential homes and decide which they want to make an offer on. They consider neighborhoods, architectural styles, yard size, bedroom and bathroom counts, and any number of details to find a home that fits their needs best.
While you might not think of it right away, equally as important is identifying the right mortgage lender to finance the purchase, because not all mortgage lenders are created equal. Given that you are on the hook for the mortgage for anywhere between 15 and 30 years, here are five tips to keep in mind when shopping for mortgage lenders in WA.
1. Know the Type of Mortgage You Want to Borrow
There are a variety of home loan options offered by lenders to cater to different needs.
For example, conventional mortgages are available for borrowers with a stable credit history, a steady source of income, and the resources to make a down payment of at least 3 percent of the cost up front. Borrowers opting for conventional mortgages usually make a 20 percent down payment to avoid paying for private mortgage insurance.
On the other hand, those with moderate- to low-income status who cannot qualify for conventional mortgages can consider home loans insured by the Federal Housing Administration. For such mortgages, you can pay as little as 3.5 percent of the purchase price as a down payment.
Moreover, mortgages can be either fixed rate, where the interest stays the same throughout the mortgage term, or adjustable rate, where the rate increases or decreases periodically.
While some lenders may offer a mixed bag of mortgage options, there may be specialized lenders extending only specific typed of mortgages. Knowing what kind of mortgage you need and researching your options before you start applying can help you identify the best lenders to approach.
2. Compare Interest Rates and Fees
The interest rate on your home loan is a crucial factor when you are on the lookout for the best mortgage lender. Since mortgage rates fluctuate daily, you must pick the right lender before finalizing your application.
You should also compare the fees associated with closing costs. Even if you save on interest, higher up-front fees can reduce your potential savings.
The best way to obtain an accurate cost of borrowing is by referring to the loan estimate. A loan estimate is a document that a lender must legally provide within three business days of receiving a mortgage application. The estimate provides the following:
- The interest rate to be charged and if the rate will change in the future
- Projected monthly installment for repaying the mortgage
- Closing costs
- Taxes and insurance
- Other costs such as prepayment penalties or penalties for balloon payments
Make sure to read through the loan estimate carefully and weigh your options before choosing a lender.
3. Consider Getting Pre-Approved
If you want to save time on the mortgage application process when you are ready to make an offer, consider getting a mortgage pre-approval from a few lenders. A pre-approval involves lenders running a hard credit check and scrutinizing your finances to tell you how much you are eligible to borrow.
A mortgage pre-approval in your kitty also helps you show the seller and your realtor that you are serious about buying a house. You can quickly make an offer and start the loan process when pre-approved since the lender has all the information required for processing the mortgage.
Typically, here’s what you need to provide to a lender to get pre-approved for a mortgage:
- List of current and outstanding debts, including credit card debt, car loans, student loans, etc.
- Social Security number of the borrower and co-borrower, if any
- Details of savings and checking accounts
- Tax returns for the past two years
- Salary slips
- Details of your employer
- How much down payment you can make
4. Keep an Eye on Your Credit Score
Your credit score is used by financial institutions to determine your creditworthiness. Lenders use it to assess the risk of extending a loan to you.
Typically, borrowers with higher credit scores have a better chance of getting mortgages with favorable lending terms and lower interest rates. A higher credit score also opens more loan options.
You usually need a credit score of 620 or above to qualify for standard mortgages. Before you start lender shopping, look at your score and see whether it needs improvement. If you are over-leveraged, work on reducing your debt payments before you apply.
The higher your credit score, the less risky the lending, and the easier it is to secure better lending terms.
5. Look Beyond Conventional Lenders
Banks are usually the first call for most borrowers when they need a mortgage. But banks tend to charge higher interest rates and fees for processing loan applications. Banks and online lenders may also sell the home loan to another company, which then becomes in charge of collecting your payments.
This is where opting for a credit union makes sense. As not-for-profit financial institutions, credit unions charge lower mortgage rates and fees. They also usually hold the mortgage until it is fully paid off, ruling out the risk of selling it off to someone else. Credit unions like Solarity Credit Union offer affordable payment options and flexible loan terms to suit your needs. The closing process is swift; you can complete it from anywhere and save time. Instead of charging third-party costs toward closing, credit unions often levy a flat origination fee that can help you save thousands of dollars.
Unlike large banks, credit unions offer personalized service and hands-on guidance on every step of getting a mortgage. They also make it possible for borrowers with less-than-perfect credit scores to get a fair shot at borrowing mortgages at a competitive rate.
When It Comes to Your Mortgage Lender, Be Picky
Finding the best mortgage lender in WA is not a matter of chance. Starting the groundwork as soon as you decide to buy a house can help you find the best lender and mortgage option suited to your needs.