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At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
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Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. You’ll find no shortage of banks, online lenders, mortgage brokers and other players eager to take your mortgage loan application. Here’s everything you should know about choosing the that’s right for you. Types of mortgage lenders
Direct lenders Mortgage brokers Correspondent lenders Wholesale lenders Portfolio lenders Hard money lenders There are six main types of mortgage lenders. Which type is best for you depends on the level of hands-on interaction you like, the legwork you’re willing to do and any restrictions you have on loan types you’ll consider. Direct lenders
Direct lenders are banks, credit unions, online entities and other organizations that provide mortgages directly to borrowers. They create and fund mortgages and either service them (meaning manage the repayment) or outsource the servicing to a third party. They also establish and terms; these can differ significantly depending on which lender you work with. Pros
The process is all with one entity, from application to closing Borrowers typically work with one loan officer They may offer competitive rates and fees Cons
Rates and terms vary widely among lenders You have to do comparison-shopping on your own Mortgage brokers
are independent, licensed professionals who serve as matchmakers between lenders and borrowers. Brokers usually charge a small percentage of the loan amount (generally 1 to 2 percent) for their services, which the lender pays for (but passes on to you as part of the cost of your mortgage). They don’t fund loans or set interest rates or fees, or make lending decisions. Pros
They do the legwork for you and shop rates with multiple lenders on your behalf You can compare multiple loans and rates with only one application Cons
The broker is paid a commission by the lender and you may get a cheaper loan by not using a middleman Brokers may prioritize showing you quotes from lenders that pay them the highest commission, even if they aren’t the best option for you as a borrower Correspondent lenders
originate and fund their own loans but quickly sell them to larger lending institutions on the after the loan closes. Pros
Borrowers have access to a range of loan products They may offer lower fees and interest rates Cons
You might not immediately know who your servicer is Depending on when your loan is sold, it may be difficult to keep track of and manage your monthly mortgage payment in the beginning Wholesale lenders
Unlike direct lenders, never interact with borrowers. They usually work with mortgage brokers and other third parties to offer their loan products at discounted rates, and rely on brokers to help borrowers apply for a mortgage and work through the approval process. Pros
Lender’s requirements may be less strict, giving you greater approval odds if you can’t meet traditional lending requirements They may offer discounted or otherwise favorable loan terms Cons
Borrowers have to go through a third party (such as a broker) to get a wholesale deal May not be the best deal since there’s a middleman Portfolio lenders
originate and fund loans from their clients’ bank deposits so they can hold on to the loans, not resell them after closing. Typically, portfolio lenders include community banks, credit unions and savings and loans institutions. Pros
Can help borrowers with unique circumstances qualify for a loan Opportunity to work with a local institution Cons
Potentially limited loan amounts Potentially less favorable terms Hard money lenders
are private investors (an individual or group) that provide short-term loans secured by real estate. While traditional lenders look closely at your financial ability to repay a mortgage, hard money lenders are more concerned with the property’s value to protect their investment. Hard money lenders typically require repayment in a short time frame, usually one to five years. They also generally charge steeper loan , and interest rates, as much as 10 percentage points higher than conventional lenders do. Pros
Borrowers who don’t fit criteria for conventional loans may qualify for these loans Fast approvals and funds disbursement Cons
Typically charge higher fees and rates Shorter-term loan means higher monthly payments How to find the best mortgage lender
To find the , you need to shop around. Consider different options like your bank, local credit union, online lenders and more. Ask about rates, loan terms, requirements, mortgage insurance, closing cost and fees of all kinds, and . Before you start shopping, there are a few steps you can take to get the best rate: Strengthen your credit score Determine your budget Know your mortgage options Compare rates and terms from multiple lenders Get preapproved for a mortgage Read the fine print on your loan estimate Step 1 Strengthen your credit score
Long before you start looking for a mortgage lender and applying for a loan, give your finances a checkup, and improve your standing if needed. This means pulling your and credit reports. You’re entitled to a free credit report from each of the three main reporting bureaus (Experian, Equifax and TransUnion), which you can get through . If your score could use some work, first look through your credit reports for errors, late payments, delinquent accounts in collections and high balances. Paying down each of your credit cards below 30 percent of the available credit and making on-time payments are the best ways to improve your score. In addition to solid credit, lenders want to see that you can handle your existing debt along with a new mortgage payment, so they’ll look at your . This formula adds up all your monthly debts and divides it by your gross monthly income to get a percentage. Many lenders require a DTI ratio below 43 percent, though some loan programs allow up to 50 percent. To keep your DTI ratio manageable, avoid taking on new loans or making for at least three months before applying for a mortgage. You should stick to this rule until you’ve finalized your mortgage, as lenders can pull up your credit report any time throughout the application process until you close. Step 2 Determine your budget
An important part of finding the right mortgage is having a good handle on . A lender could qualify you for a loan that would max out your budget and leave no room for unexpected expenses, but taking out such a mortgage might be a bad financial move. Lenders preapprove you based on your gross income, outstanding loans and revolving debt. However, they don’t look at other monthly bills, such as utilities, gas, day care, insurance or groceries, in their calculations. To get a more accurate idea of what you can afford, factor in these kinds of expenses and other . Look at your monthly net income to how much you should spend on a mortgage payment. Step 3 Know your mortgage options
A key aspect of finding the best mortgage lender is being able to speak their language, including knowing the different . Some upfront research can also help you separate mortgage facts from fiction. “Traditionally, when it comes to getting a mortgage, a lot of people’s first thoughts are to go to a bank or that they need a 20 percent down payment to afford a home,” says Mat Ishbia, president and CEO of . “That’s an outdated way of thinking.” Many lenders offer conventional loans with as little as 3 percent down, and some government-insured loans require no down payment or just 3.5 percent down. Consider and , and if you’re a veteran, look into . There are : Conventional loans Jumbo loans FHA and other government-backed loans Fixed-rate mortgages Adjustable-rate mortgages Keep in mind that if you put down less than 20 percent, many lenders will charge you a higher interest rate and require . Step 4 Compare rates and terms from multiple lenders
Settling on the first lender you talk to isn’t the best idea. Rate-shop with different lenders — banks, credit unions, online lenders and local independents — to ensure you’re getting the best deal on rates, fees and terms. Try to find a lender that communicates the way you prefer, whether it’s online, via text or in person. If you don’t shop around, you could be leaving money on the table. Multiple studies, including out of the Consumer Financial Protection Bureau and Freddie Mac, found that comparison-shopping saves borrowers thousands over the course of a 30-year mortgage. Start exploring lenders. based on factors including affordability, availability and customer experience. Here are a few of Bankrate’s top-rated lenders: Step 5 Get preapproved for a mortgage
Getting a with three or four different lenders is really the only way to get accurate loan pricing, because with a preapproval, lenders do a thorough review of your credit and finances. Lenders can have different documentation requirements for preapproval. Generally, you’ll need to provide: Driver’s license or other government photo ID Social Security numbers for all borrowers (to pull credit) Residential address history, as well as names and contact information for landlords in the past two years Pay stubs from the past 30 days. Two years of federal tax returns, 1099s and W-2s Printouts of bank statements for all accounts for the past 60 days List of all financial accounts (checking, savings, brokerage accounts, 401(k) and other retirement savings plans) List of all revolving and fixed debt payments, including credit cards, personal and , , alimony or child support Employment and income history, along with contact information for your current employer Down payment information, including the amount, source of the funds and gift letters if you’re receiving help from a relative or friend Information on any recent liens or legal judgments against you or other borrowers, such as IRS actions, bankruptcy, collections accounts or lawsuits Be mindful: A mortgage preapproval doesn’t mean you’re in the clear. Lenders can re-check your credit, employment and income histories and your assets at any time during the process. If you take out a new car loan, for example, that changes your financial picture and can derail your mortgage. Ishbia says borrowers should “hold tight” after preapproval and avoid opening new lines of credit, moving around money in your bank accounts and changing jobs before — and during — the mortgage process. Step 6 Read the fine print on your loan estimate
We get it: Mortgage documents make your eyes glaze over. But if you don’t read them closely and there are any errors or surprises, you could feel buyer’s remorse later. Check out this form lenders are required to give you within three days of receiving your mortgage application. Pay close attention to: Your interest rate Monthly payments Lender fees Closing costs Down payment amount These items shouldn’t change dramatically from preapproval to closing if your credit and financial profile stay the same. Lenders sometimes offer credits to help lower the amount of cash due at closing. Be aware, though: These credits can push up the interest rate on your loan, which means you’ll ultimately pay more. As you compare loan estimates from different lenders, you’ll see a slew of third-party costs, such as lender’s title insurance, title search fee, appraisal fee, recording fee, transfer taxes and other administrative costs. You can , but know that lenders don’t determine the fees for third-party services — just their own. Always ask questions if you don’t understand certain fees or spot errors in the paperwork (such as a misspelled name or a wrong bank account). Getting ahead of any issues early can save you a lot of headaches later. Questions you should ask a mortgage lender
When shopping for a mortgage, there are several about the process and their loan options. Here are a few: What paperwork will you need to provide? How long does their rate lock last? How frequently do they fail to close a loan in time? What are the steps in their and will you be able to complete everything online, by mail or in person? Bottom line
Doing your homework on the basics of mortgage lending early on can set you up for success, and help you get better acquainted with the different types of mortgage lenders out there. Mortgages are not one-size-fits-all products, so you need to know how they work and how they differ from one another. This will help you find the mortgage lender and loan that offers what’s best for your situation. SHARE: TJ Porter is a contributing writer for Bankrate. TJ writes about a range of subjects, from to . Lance Davis is the Vice President of Content for Bankrate. Lance leads a team responsible for creating educational content that guides people through the pivotal steps in their financial journey. John Stearns, CMC, CRMS is a Senior Mortgage Loan Originator with American Fidelity Mortgage.