Choosing The Right Mortgage Lender
Choosing a mortgage lender may seem challenging, but it’s easy when you know what to look for.
Credit unions, banks, and online lenders all offer mortgage loans to homebuyers. Choosing a mortgage lender that provides low interest rates on mortgage loans can be tricky, because there are many options. Local lenders should be your first choice.
Credit unions are a leading choice when picking a mortgage lender, because they offer a wide variety of loans, lower fees, and more flexible terms than traditional banks. Plus, credit unions provide personalized service that online lenders can’t match.
While credit score and credit history are important factors for getting approved for a mortgage, at the Credit Union of Southern California (CU SoCal) we know you’re more than a credit score.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our mortgage options, home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.
In this article, we’ll discuss everything there is to know about mortgages, including where to get approved, how they work, and more.
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Types Of Home Loans
How to choose a mortgage lender may depend on the loan programs they offer. Here are some of the most common mortgage loans:
- Conventional. These are the most common of the mortgage loans offered by credit unions and banks, and can have a fixed or adjustable rate.
- Fixed-rate. These loans have a fixed interest rate for the life of the loan.
- Adjustable rate mortgage (ARM). These loans may or may not start with a low fixed rate, but they adjust to a higher rate.
- Government-insured (VA, FHA and USDA). These loans make it easy for people with special circumstances and/or lower credit scores to become homeowners.
- Jumbo. Purchasing a luxury property may require a jumbo loan that allows for a higher loan amount.
- Reverse Mortgage. According to the Federal Trade Commission, if you’re 62 or older – and want money to pay off your mortgage, supplement your income, or pay for healthcare expenses – you may consider a reverse mortgage. It allows you to convert part of the equity in your home into cash without having to sell your home or pay additional monthly bills. The danger of a reverse mortgage is that you lose equity and end up owing a larger sum at the end, which could affect your heirs.
Mortgage Requirements
All lenders will look at a variety of income, debt, and credit related factors to determine a borrower’s or co-borrowers’ eligibility for loan approval. The most common factors are:
Credit Score: According to the credit bureau Experian, a credit score of 620 or higher is typically needed for a conventional mortgage refinance. Certain government mortgage programs require a credit score of 580, however, or have no minimum at all.
Income: This is how much you earn from various sources, including your employment, government-issued payments such as Social Security or pension funds; money from earned interest on savings or investment accounts, etc.
Debt: This is all the outgoing money you own, such as student loans, car loans, credit card debt, etc.
Debt-to-Income Ratio (DTI): DTI is your total monthly expenses divided by your total monthly income before taxes. Most lenders will accept a debt-to-income ratio between 35% and sometimes 50%. DTI is calculated by adding all of your monthly debt payments and dividing that number by your gross monthly income. For example: If you pay $1,800 a month for your mortgage and pay $350 a month for an auto loan, then $1,800 + $350 = $2,150 monthly debt. If your gross monthly income is $6,000, then your debt-to-income ratio is 35%. ($2,150 ÷ $6,000 = .35).
Types Of Mortgage Lenders
If you’re wondering how to choose a mortgage lender, a good place to start is to first understand the different types of lenders.
Different types of mortgage lenders specialize in different types of mortgage loans. Knowing the difference will help you with finding a mortgage lender. Let’s take a closer look:
Direct Lender. As the name implies, a direct lender lends money directly to the borrower, without the use of a middle man, such as a mortgage broker. Direct lenders sell direct to consumer, so these loans are sometimes called retail loans. Credit unions and some banks are direct lenders.
Pros: Customer service care and relationship banking benefits.
Cons: Takes longer to close a loan, and requires specific credit scores, debt, income, and documentation in order to get approved.
Mortgage Brokers. A broker sells mortgages on behalf various mortgage companies. The broker will shop around to get you the best interest rate and loan terms, however, the loan may cost you more up-front as the broker will add on a commission for having brokered the loan.
Pros: Access to a wide selection of loan programs.
Cons: May charge commission or more fees than a direct lender
Wholesale Lender. Mortgage brokers sell these loans to consumers. Banks, credit unions, and online lenders may originate loans that are from a wholesale loan provider.
Pros: A wide variety of loans and options
Cons: Requires purchasing through a broker, which could include more fees.
Correspondent Lender. This type of lender will originate a mortgage loan by taking the application, underwriting and funding it. The loan(s) will then be sold to another financial institution or mortgage company that will service the loan (process your payment). If you loan is sold after your closing, you will receive a letter from the lender telling you who the servicer is and where to submit payment.
Pros: Good rates and loan options.
Cons: Homeowners may have trouble keeping track of who is servicing their loan, as it may get sold several times.
Portfolio Lender. This type of lender may be a direct lender. The lender will originate and fund a mortgage loan, but instead of selling it to a loan servicer, it will hold the loans in its own portfolio.
Pro: Relationship banking and customer service.
Con: Interest rates may be high.
Hard Money Lender. This is a private lender, not a credit union or bank that provides quick access to cash based on the value of the property being purchased (not a borrower’s credit score or income). For this reason, the interest rates are higher than a direct lender would offer. Investors use hard money loans to purchase properties to “fix and flip” quickly so they are not paying the high interest rate for very long.
Pros: Fast access to cash.
Cons: High interest rate.
How To Choose A Mortgage Lender
Now that you’re familiar with various types of loans and lenders, you can feel confident picking a mortgage lender. As we’ve seen, mortgages are available from many sources, including credit unions, traditional banks, and online lenders.
Finding a mortgage lender should start with someone you trust to help you through the process. Most lenders offer borrowers a selection of loan types (including conventional, FHA, jumbo, and others); interest rates (based on an individual’s credit score, income and debt); loan terms (the length of the loan), and repayment options.
Banks are almost always for-profit institutions, and while they tend to offer competitive, low-interest rates for loans, they tend to have higher fees than credit unions.
Online lenders offer attractive low interest rates, however, you won’t get the personal service that a credit union or bank can provide.
Credit union Members benefit from low mortgage rates, low fees, and concierge-style service. When it comes to choosing a mortgage lender, ultimately, it’s best to choose the lender that's going to be available to take your calls, answer your questions, and provide you with the lowest rate, a loan amount with monthly payments you can manage, and no penalty for early loan pay-off.
Why Choose Credit Unions?
Credit unions are non-profit organizations owned and controlled by the Members who use their services. Credit unions operate to promote the well-being of their Members. Profits made by credit unions are returned back to Members in the form of reduced fees, higher savings rates, and lower loan rates.
There are many
advantages to banking at a credit union. Higher returns, better savings, low- or no-fee loans, low interest on borrowings, and a sense of community – are just a few of the benefits of membership at CU SoCal.
CU SoCal Mortgages and Home Loans
Ready to get a mortgage?
CU SoCal can make it happen with:
- Down payments as low as 3%
- Competitive rates
- Fast pre-approval
- Purchase and refinance
- Financing up to $3 million
- Flexible terms of 10-, 15-, 20-, and 30-years
- Fixed, adjustable-rate, and interest only loans
- Fast financing
- Professional guidance
- Flat lender fee of $995
- Free home shopping platform with buyer rebates
Why Savvy Consumers Choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
Get Started on Mortgage Today!