Choosing a mortgage lender is a crucial step in the homebuying process that can make or break landing your dream home. Here's how to pick the right one.
You’ve got a lot of decisions to make when you buy a home: property type, city, neighborhood, square footage, amount of yard space.
But choosing a mortgage lender is almost as important as choosing your home, especially in today’s real estate market. The right lender can help you gain a competitive edge over other buyers and get into the home you want.
The wrong lender will fumble your loan, potentially slowing down your homebuying process and missing your closing date – which can cause you to lose the house and a lot of money.
Let’s talk about how to choose the right mortgage lender for your circumstances and your market.
Ask this question first when choosing a mortgage lender
There are a lot of mortgage lenders out there, and most homebuyers request quotes from at least three before choosing one to work with. It’s a good idea to compare offers, but don’t make your decision based solely on rates.
In fact, one of the most important steps for buying your first home is to ask: Are you a purchase-first lender?
Purchase vs refinance lenders
A purchase-first lender specializes in purchase loans, meaning loans used to buy homes. In contrast, lenders who specialize in refinances will be less equipped to help you buy – especially in today’s market.
Many mortgage lenders offer both types of loans, but some focus primarily on one over the other. Here at Fairway, where I lead a mortgage team, we are a purchase-first lender. We offer refinances, but our core focus is helping homebuyers buy homes.
Is your loan officer experienced with purchase loans?
If the lender is a purchase-first lender, the next step is to ask the loan officer with whom you will be working whether they specialize in purchase or refinance.
A lot of loan officers focused primarily on refinance loans for the last several years. When interest rates dropped to unprecedented lows, homeowners scrambled to secure a better rate. The refinance business was booming.
Now that interest rates have risen, many of those same loan officers are pivoting to purchase loans. Fewer people want to refinance but a lot of people still want to buy.
A loan officer who has done only or mostly refinance loans for the past few years is frankly unprepared to help homebuyers in the current market. The competition for homes is fierce, and you want a purchase-first lender.
3 reasons for choosing a purchase-first mortgage lender
1. The strength of your preapproval
A mortgage preapproval* is the first step toward buying a home because it tells you how much home you can afford (your maximum loan amount) and the types of loans you can qualify for.
Having a preapproval from a reputable mortgage lender is essential to getting agents to show you homes and sellers to accept your offer.
But sometimes having a preapproval isn’t enough. In today’s market, sellers and agents expect all homebuyers to have a preapproval at a bare minimum. So what is your lender doing to help you get a home beyond that?
A good loan officer will go to bat for you, calling the seller’s agent directly to vouch for you as a homebuyer. While they can’t disclose your credit score or other details of your personal finances, they can assure the listing agent that you are a highly qualified buyer.
Having a loan officer proactively call the listing agent shows how confident they are in your ability to purchase the home. It also signals that the loan officer sees no red flags that would prevent you from getting financing and being able to follow through on the sale.
2. Your lender’s experience working with sellers and listing agents
As a loan officer, refinance loans are more straightforward than purchase loans. With a refinance, you’re pretty much only engaging with a homeowner. Once they decide to move forward with the refinance, the file goes to underwriting and closing, and that’s it.
A purchase loan is very different. You’re working closely with the homebuyer, of course. But you also need to be in regular contact with the buyer’s real estate agent, the seller’s agent, and possibly even the seller themselves.
You need to be comfortable coordinating that communication, proactively checking in throughout the process, and picking up the phone if problems or obstacles arise. You also need to be able to close the loan on time – which brings me to my next point.
3. The lender’s ability to close loans quickly
The pressure to close quickly and on time is huge when you’re buying a home. When you sign a sale contract with a seller, you commit to a specific timeline for conducting your due diligence (loan approval, inspections, appraisal, etc.) and closing on the home.
In today’s market, sellers typically look for offers with closing times of 30 days or less. A lender that isn’t used to doing purchase loans may not be able to stick with that timeline, especially if they prioritize refinance closings ahead of purchase ones.
Missing your closing date can be hugely consequential for you as a homebuyer. If you don’t close by the agreed-upon date, the seller can back out of the sale and take any earnest money you put down with them. You won’t get back any money you put into inspections, either.
That’s why working with a lender that understands that time pressure and can give you the final loan approval early is crucial in the current real estate environment.
Questions to ask a loan officer
Choosing the right mortgage lender – meaning the company as a whole – is one thing. But you also want to find the right loan officer.
Your loan officer will likely be your primary contact as you complete the loan process, so you want to be confident in their abilities, reputation, and commitment to you.
Before choosing to work with a particular loan officer, ask them the following questions:
- How long have you been a loan officer? Just because someone has only been a loan officer for a few years shouldn’t necessarily be a red flag, as they may have helped a number of buyers purchase homes in that time. But having some experience does give them credibility.
- How many purchase transactions were you the loan officer on last year? Again, it comes back to them knowing – and being able to do – what it takes to help you win the home you want.
- Do you have any real estate agents or title representatives who will vouch for you? The loan officer’s response to this question is telling. Ideally, they’ll refer you to several real estate or title professionals with whom they’ve worked. Getting insights from those folks, especially real estate agents, can be hugely helpful because they can give you examples of what this loan officer has done to help buyers in the past. If they’re unwilling to share references or seem put off by the question, that’s a bad sign.
How to choose the right mortgage lender
Choosing the right mortgage lender — the company itself –– comes down to what you’re trying to achieve and the level of support and service the lender can provide. As interest rates rise, resist the urge to focus solely on rates, as they don’t tell the full story.
Find a lender that can help you meet your homebuying goals because they have the experience and resources to do it. And find a loan officer within that organization who will proactively help you edge out other buyers and get you into the right home.
Choosing a mortgage lender FAQs
Does it really matter what mortgage lender you use? Yes. Different lenders specialize in different loan types – purchase vs refinance, for instance. Additionally, not all mortgage lenders offer the same loan products. If you want to use a VA loan, you need to work with a lender that does those loans. Same with conventional, FHA, and USDA loans.
A lender’s reputation also matters. If they’re known for fast closings, prompt responses, and getting even loans with unique circumstances closed on time, a seller’s agent may encourage their client to choose offers with that lender over others. Lenders with a reputation for dropping the ball or issuing unreliable prequalifications can cause sellers and listing agents to steer clear of offers linked to them.
Is it better to go with a local lender for a mortgage? It depends what you mean by local. Some national mortgage lenders have local branches, and that can give you the best of both worlds. Your loan officer and their team will know your area, and your specific market, and can respond quickly when you have questions or issues. And the seller’s agent may even know your local loan officer or branch, which can help you get the winning bid. But a local branch that is part of a national lender will also have the resources and brand to help you make a winning offer and purchase the home you want.
Which mortgage loan is better for first-time buyers? There is no single mortgage that’s best for first-time homebuyers. But there are a number of no and low down payment mortgages available to first-time homebuyers, which can make it easier to get into a home. VA and USDA loans offer 100% financing for eligible homebuyers, while you can get an FHA loan for 3.5% if your credit score is 580 or higher and you meet the program qualifications. Conventional loans are available to qualified homebuyers for as little as 3% down.
Get pre-approved with a quality lender
Your best shot at getting your offer accepted is having a solid pre-approval from a local lender. Nothing tells the seller and their agent that you’re serious quite like an approval from a reputable company.
Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.
*Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.