Selecting a mortgage lender is a little like opening a really big menu in a new restaurant: all the options can be overwhelming! Which one do you go for? What if you choose and then realize you made a mistake? To help you decide, let’s lay out exactly how to choose a mortgage lender that’s perfect for you and your new home in Dallas, Austin, Houston, or anywhere else in Texas.

How to Choose a Mortgage Lender

Understand Your Options

These days, there are many different kinds of mortgage loans available to you. It’s worth taking the time to thoroughly understand your options. Then you can decide which type of loan best suits you and your financial situation. The two main types of mortgage loans are conventional loans and government-insured loans.

Conventional Loans

As the name suggests, a conventional loan means an ordinary, straightforward private mortgage loan. You can get a conventional loan from a variety of private lenders and also from Fannie Mae and Freddie Mac. If you have good credit and enough cash to cover a sizable downpayment, a conventional mortgage loan is probably your best bet: you’ll have the lowest rates and other costs to pay in the long run.

You’ll usually need a FICO credit score over 620 and a debt-to-income ratio under 43 percent for one of these loans. You’ll find the best conventional loan deals if you can afford a full 20 percent down payment. But you can often pay less on your downpayment – even as little as three percent – as long as you take out private mortgage insurance (PMI) as well.

Government-Insured Loans

When a mortgage is government-insured, the loan is issued by a private mortgage lender and guaranteed by the government, meaning the lender is happy to take on customers they deem to have a slightly higher risk profile. So if your credit score is a little on the low side and you can’t cover a larger down payment, consider a government-insured loan.

There are three government agencies kind enough to back these loans: USDA loans are for borrowers living in rural areas, VA loans are for veterans and active members of the US military, and FHA loans are for pretty much anyone else. You can often pay much less than a 20 percent down payment because the loan is guaranteed by one of these agencies. But you’ll need to provide more documentation, and your overall mortgage costs will usually be higher.

Fixed-Rate vs Adjustable Rate Loans

Both conventional and government-insured loans can have either fixed or adjustable interest rates. Fixed-rate loans are more predictable and easy to budget for. The interest rates of adjustable-rate loans might be lower in the short term but run the risk of rising later on. If you only plan on staying in your home for a few years, an adjustable-rate mortgage might help you save money during that shorter period.

Determine Your Budget

Now that you have an idea about what type of mortgage is a good fit for you, it’s time to determine how much you can realistically afford. Remember that alongside your downpayment, there are all kinds of other expenses that come along with buying a home.

You have the costs of home inspections, insurance, moving companies, repairs, refurbishment, furnishing, and plenty more besides. Make sure you budget for more than enough to cover everything, including the unexpected.

Bolster Your Credit Score

You’ll broaden your mortgage options a great deal by working diligently to strengthen your credit score in the years and months leading up to your home purchase. Pay your bills on time, use credit cards strategically, dispute credit report errors, and learn the various other strategies for optimizing credit health.

Comparing Lenders in Dallas, Austin, and Houston, Texas

Analyzing the nitty-gritty details of multiple mortgage offers can cause some people’s eyes to glaze over. But take a deep breath and prepare to compare. It’s always a mistake to settle for the very first lender you come across.

Take the time to shop around for the very best terms, fees, and rates, and you’ll save thousands of dollars over the coming years. And if you need a hand with this process, you can always ask a good mortgage broker to help.

Look at Interest Rates

The interest rates are perhaps the easiest figure to compare. How much interest you’ll be paying each month can greatly impact your finances. Your credit score, downpayment figure, and various other factors will influence the interest rates you’re offered.

Consider if you intend to pay back some of the principal loan amount each month in addition to the interest. And find out how this will reduce your rates over time. For each lender, also find out about their points system and how these earned points may reduce your rates over time.

Get Clear on the Fees

Many borrowers forget to look closely at the additional fees associated with each home loan. And that’s a mistake. These fees include underwriting fees, application fees, and various fees at closing. Clarify the total fees you’ll be paying with each lender.

Ask About Downpayment Assistance

There are over 2,500 downpayment assistance programs in the US. These government programs provide you with an additional loan that helps you meet the downpayment required by your mortgage lender.

For many buyers who are short on cash, this makes a big difference to the home they can afford. If you’re interested, ask lenders if they participate in any of these programs and what the eligibility requirements are.

Don’t Be Shy: Ask Plenty of Questions

For each lender you look into, try to paint a picture of how the whole process will work. Ask them which individual you can talk to throughout the process and how long it will take. Ask how much you can do online and how much will require face-to-face meetings.

If you’re hiring a mortgage broker, ask how many quotes they requested before deciding upon the loan they’re recommending. Also, ask how they rate loans and how their fees and commissions work. If you’re in any doubt about anything at all, it never hurts to ask.

Get Pre-Approved for Accurate Pricing

You won’t receive really accurate pricing for your loans until you’re pre-approved. Only at this stage will the lender do a thorough review of your finances and credit.

From all the lenders you look into, make a shortlist of four or five lenders for pre-approval. With this shortlist, you’ll be sure of your concrete options and be able to make a final decision. It is possible for figures to change between pre-approval and closing, but if your credit and finances remain the same, this is very unlikely.

Read the Fine Print

When you’ve made your final choice, it’s time to apply for that loan. Within three days of your application, the lender will send you a loan estimate with all the details. And now it’s time for the least exciting part of the entire process: read the fine print!

As boring as it might be, look through every detail and make sure there have been no mistakes, alterations, or misunderstandings. Pay particular attention to the downpayment amount, the monthly payment and interest rates, and the various fees and closing costs. When you’re entirely satisfied, congratulations: you’re ready to accept your chosen mortgage loan.

Now you know how to choose a mortgage lender. If you’d like help finding the perfect loan, contact Home Loans with Gary. We provide detailed guidance, various financing options, and personalized service for each of our customers in Dallas, Austin, Houston, or anywhere else in Texas.