Best Mortgage Lenders and Refinancing Companies

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Best Mortgage Lenders and Refinancing Companies

Whether you’re a first-time homebuyer, a landlord seeking rental properties or a real estate investor, you will probably need the help of a mortgage company to complete your property purchase.

Mortgage companies help people secure funding in the form of secured loans against residential or commercial property. Mortgage companies also help property owners refinance existing loans if they are having financial difficulties or might benefit from new terms.

How to choose a mortgage lender

1. Get ready to apply for a mortgage

Before you apply for a mortgage, assess your situation and consider all the factors that will impact your mortgage financing options. Some mortgage lenders specialize in certain types of financing so start with a high-level list of must-haves before comparing lenders. Use our mortgage calculator to get an idea of how much house you can afford, then consider the following items to begin your mortgage lender search.

  • Calculate your monthly payment: Multiply your monthly take-home pay by 25% to determine your maximum mortgage payment. Remember that your total monthly mortgage payment will include principal and interest, property taxes, mortgage insurance and, in some cases, a homeowners association (HOA) fee.
  • Save up for your down payment: A down payment is an amount of money you pay upfront to secure a mortgage. How much you need to save for a down payment will depend on the type of mortgage loan you get and the price of the home you buy.
  • Improve your credit score: Check your credit score before you start shopping for a mortgage lender to avoid any surprises during the pre-approval process. Your credit history can affect your loan options and a higher credit score will usually get you a lower interest rate.
  • Select your property type: Are you shopping for a condo? Would you rather build instead? Some lenders specialize in loans for specific properties. Knowing what type of property you want to purchase can help you narrow down your mortgage lender options.
  • Get pre-approved: Getting a pre-approval letter from a mortgage lender can make the difference between having your offer accepted or rejected. Pre-approval means your lender has reviewed your financial statements and has decided that you can afford the house you want to buy. Many home sellers will require a pre-approval letter before they’ll accept an offer.

2. Look at all your mortgage financing options

When it’s time to compare your loan options you’ll need to consider the term of the loan, the type of interest rate you want and the type of loan you need.

  • Loan term: The term of the loan is how long you have to pay off the loan. Most homebuyers get a 15-year or a 30-year mortgage, but some mortgage lenders may offer other terms. A longer loan term will generally mean lower monthly payments. However, a shorter loan term will mean you’ll pay less in interest over the life of the loan.
  • Interest rate: Mortgage interest rates can be either fixed or adjustable. Adjustable-rate mortgages (ARMs) may start out low and change during the course of a loan, causing your monthly mortgage payments to fluctuate. Fixed-rate mortgages lock in the same interest rate during the life of the loan. The most common type of home loan is the fixed-rate mortgage since it provides a lower monthly payment for the same loan amount.
  • Mortgage points: Mortgage points, or discount points, are fees that you pay to your lender directly at closing to lower your interest rate. One mortgage point is equal to one percent of your loan amount, so one discount point on a $200,000 mortgage is $2,000. Figure out how long it will take you to break even by dividing the cost of your points by how much you’ll save every month. The number you end up with is the amount of months it will take you to break even. If you plan on staying in your home for that period of time or longer, then it’s worth paying the upfront discount points to save over the life of your loan.
  • Loan type: Mortgage loans come in three main types: conventional, FHA and special program loans. Conventional mortgages are loans that are not insured or guaranteed by the federal government and can have either a fixed or adjustable rate. FHA loans are insured by the Federal Housing Administration and come with lower down payment and credit score requirements than conventional loans. Special program loans like VA loans and USDA loans are also government-insured loans available to eligible homebuyers.

3. Shop around for special offers

Smart consumers shop around and take advantage of special offers when they’re available. Before you start gathering quotes, consider narrowing down your options to mortgage lenders offering specials or discounts. Some lenders offer military discounts, special savings for first-time homebuyers or discounts on closing costs. Some mortgage lenders will even match competitors’ rates to earn your business.

4. Compare Loan Estimates from at least three potential mortgage lenders

Mortgage lenders are required by law to provide a Loan Estimate within three days of receiving your application. To get the best possible rate on your mortgage, you should compare Loan Estimates from at least three potential mortgage lenders. All lenders are required to use the same Loan Estimate form, which makes comparing them easier. Review the following information that will be provided with each mortgage Loan Estimate you receive.

  • Loan amount: This is the total amount of money you’ll borrow for your mortgage loan. This amount could go up if your lender rolls some of your closing costs into your loan.
  • Interest rate: Make sure you’re getting the lowest interest rate possible, and hold on to your original Loan Estimate when it’s time to close to make sure you’re getting the rate you were originally offered.
  • Monthly projected payments: This section of the Loan Estimate breaks down the amount you’ll pay each month for principal, interest, mortgage insurance, the estimated escrow and how they’ll change over time.
  • Origination fees: Mortgage lenders charge loan “origination fees” for things like mortgage application and underwriting fees. Origination fees are usually a small percentage (between 0.5% and 2%) of the total loan amount, but some mortgage lenders offer fixed fees of $1,000 or less. You can try to negotiate these fees or shop around to find a mortgage lender that charges less.

5. Research the mortgage lender’s reputation

It’s wise to do a background check on the mortgage lender before you officially take the plunge. Ask for names and phone numbers of past clients and speak with them directly about their experiences with the lender. You’ll want to find a lender that is easy to communicate with and has a fast turnaround for delivering important forms and documents. Always read reviews and look for mortgage lenders that meet deadlines and help their customers avoid potential problems.

Mortgage questions to ask your lender

When should you refinance your mortgage?

You should refinance your mortgage if it will shorten your loan term and reduce your interest rate. To figure out if refinancing can save you money in the long term, divide your total closing costs by your monthly savings. This will tell you the number of months it will take for the refinance to pay for itself.

People usually refinance their mortgage to lower their monthly payments or get a shorter repayment term. You might choose cash-out refinancing to fund a large purchase or as a way to pay down other debt. Or you might consider refinancing as a way to consolidate existing debts. It may be your best option if you’re going through a divorce and you or your ex want to keep the home.

What is a good interest rate for a mortgage?

Historically, rates have hovered around 8 percent. Mortgage interest rates vary from year to year and tend to be higher when the economy is doing well. Interest rates have increased since the recession, with most homeowners paying at least 4.5 percent. You’ll get around the same interest rate with a conventional loan as you will with an FHA loan.

How do I get the best mortgage rate?

To get the best interest rate on your mortgage, you need to have excellent credit. Take the time now to pay off your credit cards, and don’t take out any new loans while you’re getting ready to apply for a home loan.

You can also get a better mortgage rate by getting an adjustable-rate mortgage (ARM) rather than a fixed-mortgage. Keep in mind, though, that your monthly payments will increase after the fixed-rate period ends if you opt for an ARM.

A higher down payment usually equates to a lower interest rate. Try to save up for a 20 percent down payment, so you can also avoid having to pay private mortgage insurance (PMI). If you can’t put down 20 percent, shoot for at least 5 percent, since that is usually where you’ll start seeing a decrease in interest rates.

How do you get rid of PMI?

If you have to put down less than 20 percent of your new home’s purchase price, you’ll have to pay private mortgage insurance (PMI), which protects the lender in case you stop making payments on your loan. Once your conventional loan balance has dropped to 78 percent of the value of your home, you can submit a written request to your lender asking for your PMI to drop off.

If your home’s value has increased to the point that you owe less than 78 percent of the value, you might be able to request for your PMI to be removed. You’ll need to pay for an appraisal to validate that the value of your home has increased. Many lenders won’t consider removing PMI until you have made payments for at least two years, so check with your bank or mortgage lender before getting an appraisal.

If you have an FHA loan, you have to keep paying PMI unless you refinance your mortgage to a conventional loan.

How do you get pre-approved for a mortgage?

To get pre-approved for a mortgage, you have to submit your W2, tax returns and pay stubs to your lender so they can verify your monthly income. Your lender will also want documentation of any other assets you have. They’ll use all this information to determine whether or not you can reasonably afford the loan you’re going to apply for. Keep in mind that the lender will do a hard pull on your credit, which means your credit score could take a small dip, so only get pre-approved when you’re serious about putting in an offer on a home.

What is better, fixed or adjustable rate mortgages?

The interest rate for a fixed-rate mortgage stays the same for the duration of the loan unless you refinance for a lower interest rate. Fixed-rate mortgages are popular because they keep your monthly payment steady and predictable. They’re available in 30- and 15-year terms.

In contrast, an adjustable-rate mortgage (ARM) has a fluctuating interest rate. There is an initial fixed rate interest period of 3-10 years in which interest rates tend to be lower than fixed-rate mortgages, but it’s hard to predict whether an ARM will cost more or less than a fixed-rate mortgage in the long run since the interest fluctuates month-to-month once the fixed-rate period ends.

What are the different types of mortgage lenders?

The most popular types of mortgage lenders are mortgage brokers, direct mortgage lenders and mortgage bankers.

A mortgage broker does not lend money to the borrower but instead helps facilitate communication between the borrower and the lender. The broker negotiates on the borrower’s behalf and does all the research required to get the best loan possible. If you have bad credit, you might want to use a mortgage broker who will shop around for the best loan option.

A direct mortgage lender offers you a loan directly rather than going through a broker. Most direct mortgage lenders handle everything in-house, including underwriting and closing the loan, so they can make the overall process of buying a home faster.

A mortgage banker is a type of direct lender that is part of a banking institution that focuses on mortgage lending. A mortgage banker uses their own funds to offer borrowers a mortgage. You might be able to get a better interest rate if you have multiple loans through the same bank.

What are the different types of mortgage loans?

Conventional loans

Conventional loans are not backed by a government agency and usually are offered on a 30-year fixed rate term. The down payment is generally 20 percent of the home price. You might be able to get a conventional loan by putting less money down, but you’ll pay a higher interest rate.

Conforming loans

Conforming loans are conventional loans that conform to the guidelines set up by Freddie Mac and Fannie Mae. They have lower interest rates than non-conforming loans, and their loan limits are around $417,000 in most areas.

Jumbo loans

Also called non-conforming loans or jumbo mortgages, jumbo loans are loans that exceed the maximum loan limits set by Freddie Mac and Fannie Mae. In most U.S. counties, jumbo loans start at $424,100. In high-cost housing markets, jumbo loans can start anywhere from $424,100 to $721,000. They require higher down payments than conforming loans and have comparable interest rates.

FHA loans

FHA loans are backed by the Federal Housing Administration and have a low down payment minimum of 3.5 percent for borrowers who have a credit score of at least 580. Borrowers with a lower credit score can still qualify for an FHA loan with a more substantial down payment. You have to pay private mortgage insurance (PMI) on an FHA loan, which can range from .3 percent to 1.5 percent of the original loan amount. PMI payments are rolled into your monthly mortgage payments.

VA loans

VA loans are guaranteed by the Department of Veterans Affairs. Qualifying active and retired military members can get a loan with no down payment. Lenders can set their own minimum credit score requirements and interest rates, so shop around to see which VA-approved lender can offer you the best interest rate.

USDA loans

The U.S. Department of Agriculture (USDA) offers loans to eligible rural and suburban homebuyers at low interest rates. Qualifying borrowers can get a loan without a down payment. Like an FHA loan, you’ll have to pay private mortgage insurance. The USDA prioritizes homebuyers with low income who aren’t able to secure a home loan through another source, regardless of their occupation.

Home equity loans

Current homeowners can apply for a home equity loan, which is essentially a second mortgage, if they have built up enough equity. These have lower interest rates than other types of loans, like credit cards and personal loans, so they can be a good option for those who need extra cash. Get a home equity loan as either a lump sum or as a home equity line of credit (HELOC).

Interest-only loans

Generally offered as adjustable rate mortgages, interest-only loans allow you to only make interest payments for the first 3, 5, 7 or 10 years of your loan. Once the interest-only period ends, you pay principal plus interest for the duration of your loan. Interest-only loans are not as widely available as other types of loans, like conforming loans, because homeowners ran into so many problems paying this type of loan during the recession.

Balloon mortgage loan

Often used for commercial construction loans, balloon loans are short-term loans (usually 5 or 7 years) with payments based on a 30-year loan. After your loan term is up, though, you have to pay the remainder of your loan in a lump sum. Homeowners with a balloon mortgage generally end up selling their home, converting their balloon mortgage to a conventional mortgage or refinancing their home at the end of their loan term.

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Written by Michele Lerner, Mortgage & Real Estate Contributing Editor – Michele Lerner, author of “HOMEBUYING: Touch Times, First time, Any Time“, has been writing about personal finance and real estate for more than two decades.  Michele writes for regional, national and international publications in print and online for a variety of audiences including consumers, real estate investors, business owners and real estate professionals.
Photo courtesy of Guild Mortgage