How do you find the best mortgage lender to meet your needs?
Although many borrowers simply look for the one offering the lowest
interest rate, there’s more to it than that.

The first thing you need to know is that low interest rate isn’t
necessarily a sign of a good deal. A mortgage or refinance
inevitably comes with all kinds of fees and various costs that,
when added together, can significantly raise the cost of your loan.
So what you want to do is find the best combination of interest
rate and fees. More on that later.

When shopping for a mortgage, either to buy a home or refinance,
there are a variety of different types of lenders that can meet
your needs: large institutional banks, national mortgage lenders,
online lenders, smaller regional and community banks, savings and
loans, credit unions and mortgage brokers, to name some of the main
ones. Each offers its own advantages and disadvantages.

Large mortgage lender or community bank?

The bigger lenders, particularly the large banks and national
and online lenders, may be able to offer particularly good rates.
However, their loan approval process tends to be fairly structured
and may be a poor fit for you if your circumstances or the property
you’re financing don’t fit neatly into cookie cutter categories -
like an unmarried couple buying old farmhouse on the edge of a
subdivision, for example.

Larger lenders may not give the personal service smaller ones
do, though that isn’t always the case. Many large banks and lending
institutions operate local offices with lending officers who can
provide a level of personal service similar to a small bank.

Don’t assume smaller regional lenders can’t compete with the big
boys on interest rates and fees, either. In fact, many of them are
actually correspondent lenders for the larger banks – in essence,
offering big-bank mortgages and terms under their own label.

Loans tailored to local markets

A smaller, local lender, such as a community bank, savings and
loan, or credit union, can offer personal service, but that’s not
their only appeal. These lenders also tend to have a detailed
understanding of their local real estate markets and economies, and
may be comfortable making loans to clients and on properties in
their area that larger lenders may shy away from.

Certain lenders, both large and small, will be more willing to
extend mortgages to borrowers with poor credit, although they
charge higher interest rates to do so. You can track these down on
your own, but if that’s your situation, you may want to go with a
mortgage broker. Brokers work with a large number of lenders to
find you the best rate and terms, though they charge a fee for
doing so, typically in the form of a slightly higher interest rate
than if you’d contacted that same lender directly. Still, many
people find the convenience they offer and knowledge of where to
find the best terms to make their services well worthwhile.

What to look for in a loan officer

To choose a mortgage lender, you want to find someone who’s
knowledgeable and who you’re comfortable working with. Does the
loan officer/broker readily answer your questions? Do they seem
knowledgeable, or do they keep having to get back to you on things
they ought to know? Do they return calls promptly? Finally, do they
strike you as a mortgage professional or just someone who’s trying
to get you to sign on the dotted line?

When you find a few brokers you’re comfortable with, and who
seem to be offering attractive rates and terms, it’s time to do
some serious shopping. Ask 3-4 for rate quotes (you shouldn’t have
to pay for this), based on the amount you want to borrow. Try to
submit all your requests in a single morning or afternoon, since
rates change several times a day.

Comparing mortgage quotes

For each quote you request, you’ll receive a federally required
Truth in Lending form (TIA), which will spell out the interest rate
they’re offering and any fees that will be charged for originating
the loan and other costs. It will also show something called the
Annual Percentage Rate (APR), which is a way of combing the
interest rate and lender fees into a single figure.

Basically, the APR is what you’d pay if all the lender’s fees
were built into the interest rate, rather than being added onto the
loan amount. It’s a good way to compare the actual cost of
different loan offers, within limits. The APR won’t reflect the
cost of non-lender fees, which will also be listed on the TIL form,
and you can’t use it to compare dissimilar loans, like a 30-year
mortgage to a 20-year one, or the cost of a 7-year adjustable rate
mortgage (ARM). But it will let you compare apples to apples,
mortgagewise, and determine which lender is offering the best
deal.