Don’t sweat it, as a home financing specialist that helps manage the reputation of over 100 mortgage lenders, I’ve gained a good sense of how to find the right mortgage lender, especially for first-time home buyers.
This article will walk you through actionable steps that you can take to navigate the homeownership loan process like a pro.
Let's take a deep dive into how to loan comparison shop as a first-time buyer.
Where to Start When Looking For a Mortgage
Understand your needs: Before you dive into Google looking for lenders it is important to know which type of loan will suit your needs best. Different lenders will often cater to different loan types, making it important for you to know what loan you need.
For example, a lot of first-time home buyers may qualify for a specialty loan, such as an FHA loan. Loan qualifications are more flexible plus an FHA loan makes it easier to afford your first home due to the small down payment requirement, usually 3.5%. There are around eight general mortgage loan products, make sure you take the time to figure out which type of loan will best meet your needs.
Find reputable lenders: After you narrow down your loan options it’s time to start comparing lenders. You’ll want to look into at least five different lenders so you can ensure you are getting the best rate possible. To begin building your list of lenders, try these three approaches:
Find a few websites that compare online mortgage lenders. There are a handful of financial websites and blogs that rank and review mortgage lenders. Looking at different review websites, such as Best Company, will help you get a feel of the top players in the home loan industry.
Talk to friends and family. It’s likely that you know someone that owns a home. Getting an inside look into someone’s experience can help steer your search in the right place.
Search for lenders that you have heard of before. Maybe you live close to a brokerage or perhaps you’ve seen numerous ads for your local credit union. Checking out options that you know is a quick way to start comparison shopping.
If you are building a home and getting a construction loan, working with a lender that works with these types of mortgages will be helpful. Construction loans and what they require are a bit different than traditional mortgages. They are also structured differently as well.
What to Look For in Mortgage Offers
Dig into the loan details: Now that you have a handful of specific lenders to look into, start digging into the details of their offers. Every lender will have slightly different loan terms, this could be the difference between a loan working for you or not.
To get more information about the loan specifics you’ll most likely need to chat with one of the representatives at the brokerage. They should be able to answer all of your questions about their loan terms and what you can expect your loan to look like. Here are a few specific things that you should pay attention to when comparing different loan products:
Breakdown of principal and interest amounts
Life of the loan
Credit score, debt-to-income ratio, work history, and down payment requirements
Lenders fees and special discounts
Check out customer reviews: In addition to looking at the actual loan products, make sure to also look at customer reviews to confirm if what the lender promises match the experience of real customers.
Reviews are a great way to better understand the ins and outs of a company from an objective perspective. In a recent study conducted about mortgage customer reviews, about 20% of the lender reviews were 1-star.
The two largest complaints were about lenders with poor customer service and a lack of transparency. Do your due diligence when looking for a good lender by utilizing customer reviews.
Get an estimate: What is great about the mortgage industry is that it is competitive. Lenders will often try to match other lenders with the same or better rates in order to keep your business. Because of this, it is important to get loan estimates from your top contenders.
Loan estimates are usually free and can be done quickly online or with one the lender’s representatives in-person. The loan estimate will outline your loan type, monthly mortgage payment, APR rate, principle, and interest. Once you have a few loan estimates from different lenders you can use them to identify the best rate or to negotiate down the loan terms of your preferred lender.
Who to Choose From on a Lenders List
Make a pros and cons list: After you look into what different lenders offer it’s time to finally make a decision. As cliche as it sounds, making a pros and cons list is a great way to match your needs with the right loan option.
Make sure to take everything into account when you are comparing loan options, you can’t just look for the lowest rate and assume that that is your best option.
For example, let’s say that option A has a low APR rate but high closing costs and fees. Option B has a slightly higher APR rate but no closing costs.
You’ll want to do the math to see which option will be cheaper over the entire life of the loan. Take your time making an accurate pros and cons list for each lender, it will be worth it.
Choose a lender: Now that you have all of your pros and cons in front of you it is time to make a decision. As you look over your lists make sure to keep in mind what is most important to you. This could be the loan terms, interest rate, specialty programs, customer service, or anything else that you want to prioritize.
If you still cannot decide, look at customer reviews to help you tip the scales in one direction. Reviews may help reveal how lenders handle things that you prioritize from a realistic perspective. Once you’ve narrowed it down to one lender, remember to negotiate the loan terms and APR rate. Lenders are often willing to change something to better fit your needs.
Good luck on your home ownership journey, remember to download our free checklist to make home loan comparison shopping easier.
About the Author: The above article on how to shop for a mortgage as a first-time home buyer was written by Madison Smith. Madison is the leading home finance expert at BestCompany. She works to help others make positive financial strides in their lives by providing expert insight on anything from first-time home buying tips to real estate investing.
She has been featured on Forbes, The Lenders Network, Rocket Mortgage, and more. Follow her on Twitter @maddie_mingus for weekly doses of thought-provoking financial content and a chance to connect!