Buying a house can be stressful. There is so much documentation to get together and so many decisions to make. My family recently bought our first home and at first we had no idea what we were doing. We had looked at Zillow and estimated what we could afford based on their monthly cost estimator, which by the way is very inaccurate. Then there was the issue of deciding what we were looking for in a home, which of course, we were on two separate pages about. I wanted a good school district and neighborhood, my husband really wanted a big yard. But how to compromise in marriage is a whole different article! We learned a lot through the first time home buyer process and in this post we discuss everything we learned about finding the best home mortgage.
Types of mortgage companies
The first thing we learned was there are 4 main types of mortgage companies that you can get your loan through.
- Big banks. Big banks, such as Chase or Wells Fargo, usually offer home mortgages. You probably already have an account with one of these big banks and are familiar with them.
- Credit unions. Credit unions usually require that you are a member to apply for a loan. Credit unions are generally small and may be local to just your area.
- Mortgage bank/mortgage lender. Many mortgage banks are online and only do real estate loans. They often sell their loans to another bank because they do not have the long term funds to hold the loans.
- Mortgage broker. This one isn’t lender, but really as the name says, just a broker. They act as a go between for the buyer and the lender. They are able to search many types of loans and rates. They are especially useful if your credit is not perfect or your situation is not straight forward.
After my husband and I finally understood all the options out there, we were able to make a much better decision on what type of mortgage company we got our loan through.
Get your finances in order
The second thing we learned is that it is really important to get your credit and finances in order. Make sure you know how much you have for a down payment. Hint, it isn’t everything in the bank. You still need to leave some money in the bank for house related expenses and emergencies. Run your credit reports so you know your score and check for any inaccuracies. Another thing that we did not know is you should not make any changes while shopping for a home loan. Do not open any new credit cards, move money from bank accounts or make any new purchases. Opening a new credit line will change your credit score and report, potentially negatively. Mortgage companies will want to see 3 records of your bank statements. They really comb through them and will often ask questions about large purchases and deposits. I didn’t want to have to defend my overspending at Nordstrom, so I kept it under control during and before the home buying process.
Like your loan officer
Another thing I learned through this process is that you should really like your loan officer. You will end up spending a lot of time on the phone and by email with this person and it is important that you feel comfortable with them. We met with someone that I felt was really dismissive to my questions and didn’t seem to want to spend time working with me. As it was our first time getting a home loan, I wanted to make sure I had a thorough understanding of the process and what we were getting into. We required a lot of hand holding. When we met with another loan officer, he was really patient, took time to answer all my questions and go through every down payment scenario I wanted him to. He was also very accessible even going as far to give me his cell number so I could text him after hours. Huge mistake on his part!
Negotiating your mortgage
The last thing I want to share, and possibly the most important, is negotiate! You should shop around and get quotes from 3 to 5 lenders. You can take the best one back around and ask the other lenders to beat it. Some will be able to and others won’t. No need to worry about how this many inquires will affect your credit report. Within a 30 day period, all credit checks from mortgage lenders are recorded as a single inquiry. When you are negotiating, don’t forget to compare loan origination costs, underwriting fees and any other fees as well as the mortgage rate.
We’d love to hear from you. Please share some tips below that you learned when choosing a mortgage lender.
I had 3 lenders vying for my business, each one ran my credit. 3 hard inquiries appeared, all were counted, not just 1. Same happened previously for a car loan I secured. It’s not a big hit, but its a hit.
Hi Jeff, thank you for sharing your experience with us, everyone should still be aware of what is happening when the lender pulls their credit. Everything we researched said it should show as one.
Here is a quote from http://www.Equifax.com where we found some of our info.
If you’re shopping for a new auto or mortgage loan or a new utility provider, the multiple inquiries are generally counted as one inquiry for a given period of time. The period of time may vary depending on the credit scoring model used, but it’s typically from 14 to 45 days. This allows you to check different lenders and find out the best loan terms for you.
Another thing to consider is the time you expect to own your home. A typical buyer sells within 10 years to either move up in the market or relocate to another city. In that case you would save money by getting an adjustable rate mortgage with a lower interest rate guaranteed for a period of 5 to 7 years. It increases risk a bit – you could be the exception and stay in the house longer and eventually adjust to a higher rate – but it more likely will save you money.
Thanks Randall. That is a great point!