When it comes to shopping for a mortgage loan, it’s seldom an enjoyable experience. In our previous article, we looked at what APR is and how to compare lenders and brokers by reviewing the interest rate and closing costs the quote to you. Here, we will consider the characteristics that can make or break a deal when choosing the right mortgage lender.
What to Look for in a Lender
There are many important qualities to look for when choosing the right mortgage lender to work with. Big national or global brands are not necessarily better than smaller operations that are local to your city or state. I have identified the following qualities as what you should look for in a lender:
Accuracy
Your initial point of contact with a lender or broker will likely be a salesperson or loan officer. Their job is to gather basic information about you as a borrower, then search for loans that you may qualify for. Some lenders automate this initial step through various types of online portals.
You should look for a mortgage lender who can deliver on what they promise. However, you need to be cautious of lenders who promise too much too quickly. For example, you cannot expect that any estimates they provide you at this early stage will be definitive.
You may want to hear interest rates and loan terms immediately, but you need to keep in mind that until a loan officer gathers and analyzes your entire loan application, credit report, and documentation, that any terms they quote you may not be accurate.
Above all, you want to work with a mortgage lender who asks all the right questions at the right time. Good questions are ones that give the lender the information they need to find the most suitable loan program for you as a borrower.
For example, you should expect to be asked some or all the following questions:
- What is your income?
- What are your expenses?
- How much in assets or savings do you have?
- How much of a down payment do you plan to make?
- What type of home are you looking for?
- What are your plans for the home?
Avoid lenders who ask any of the following questions, as they are likely fishing for additional business or looking to refer you to another salesperson:
- Are you looking to move anytime soon?
- Do you have life insurance?
- Will you be working with a contractor to remodel your home?
Your lender should also be able to give you a clear picture of your rate, costs, and fees. Note that you should find all of these in the Loan Estimate document that lenders are required, by law, to provide you.
Efficiency and Communication
What you are looking for is an organized lender who knows what they’re asking for and when to ask for it. Getting approved is a routine process for any lender, and their process should be organized, simple, and clear. Your lender should provide you with an intuitive online portal to supply documentation to them via file uploads.
For example, during the loan pre-approval process, once you allow a lender to review your application and credit report, they are required by law to send you a Loan Estimate, Truth in Lending Disclosures, and Mortgage Servicing Disclosures within three business days.
Take note of your communication with the mortgage lender and how quickly they return your calls, text messages, and e-mails. If there are gaps in communication or delays in receiving important documents, proceed with caution—you may encounter more communication issues down the road if you continue to work with this lender.
Timeliness
Is the loan going to close on time? It may be difficult to answer this question when you first talk to a mortgage lender, but there are telltale signs. Were they late in responding to you, or did they get back to you as promised? Do they follow up or update you regularly? If they are dropping the ball on routine stuff, watch out!
The mortgage loan process is time sensitive, but the responsibility does not just fall on the lender—as a mortgage borrower, you also have an important role to play. Be sure to provide requested documentation as soon as possible. Delays from one party may affect another party and slow down the entire loan process.
Customer Service
Look for lenders who take the time to answer your questions and are more concerned about making sure you understand the process and the loan you are getting than just locking you into a loan.
Your mortgage professional should make it a personal responsibility to educate you about the loan process. Lenders who spend the extra time to make sure all your questions are addressed likely care about the level of service they provide.
Remember, you are committing to borrow potentially hundreds of thousands of dollars over a lengthy loan term. Be sure to choose a lender who respects and understands the financial commitment you are making.
Direct Lender vs. Broker vs. Online Service: Which is Best?
Direct Lender
A direct lender… well, lends their money directly. They literally “cut a check” for your mortgage loan.
Direct lenders are typically banks, credit unions, and thrifts who hold your money, such as Wells Fargo, Chase, or Navy Federal CU. However, there are also non-bank lenders—also known as “mortgage bankers”—who specialize in giving out mortgage loans only and who do not offer other financial and savings instruments like banks do.
| Pros | Tips |
| Expect clear choices competitive pricing, and an approval process with less friction. | Shop multiple lenders since each lender is restricted to only the loans it has and the interest rates available within its own lending standards. |
Mortgage Broker
A broker is like a middleman between you and several lenders, helping to get you in touch with the right lender based on your financial situation and needs. They are essentially loan officers for many different lenders. They will look at what each lender is offering and help you with the selection process all the way to closing the loan.
Notably, a mortgage broker will run your credit only once and compare it with several different lenders. In contrast, as a mortgage borrower going at it alone to shop around, you would have to run credit with each direct lender; this could impact your credit score negatively if multiple credit inquiries are made.
Mortgage brokers do not lend their own money or make the final loan decision; they collect your information and create a loan package. The loan packages are submitted to the underwriting departments of several lenders, who then make the final decision on your loan.
| Pros | Tips |
| You will get a professional who has relationships with many different lenders. As a result, you will be able to pick from several loan options to meet any specific needs or time frames you may have. | Since brokers will shop for your loan with many different lenders, be sure to ask which lenders were contacted and what those results were. |
Online Services
Online portals such as Lending Tree, Zillow, and Bankrate are advertising channels for direct lenders and brokers.
These online portals do not lend or significantly help facilitate the loan process. However, they do provide access to a large selection of lenders and brokers. They make it easier to “window shop” and get a feel for what lenders have to offer and who they are before you decide on which lender to choose. Take note that the information you receive from these sources may only be an estimate based on best-case assumptions.
| Pros | Tips |
| Easily shop online and compare different rates from a large selection of lenders and brokers. Borrower reviews also are very helpful for narrowing down your options. | Since these are advertising portals, be wary of giving out your personal information, as it may be sold to a lender (or, in many cases, multiple lenders) that will begin contacting you right away. |
Key Takeaway
Whether you decide to use a direct lender or broker, it’s important to remember that the large size of the lender and brand name don’t necessarily reflect the quality of the service that you’ll receive, especially compared to a smaller and more agile mortgage company. The real difference between lenders is in the people you will work with. It is important to find competent mortgage lenders you can trust and easily communicate with. As you shop around for the right mortgage lender, be sure to consider their accuracy, efficiency, timeliness, and customer service quality, because these will make all the difference in your overall customer experience.
