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Home loans come in many shapes and size. You might not think of them as products, but lenders do. And they create as many products as they think they can sell.
They create products by property type, by borrower’s credit standing, by borrower’s reasons for buying a property.
So, we end up with many loan options, some better for a particular borrower than others.
Which makes shopping around necessary but not easy.
How to Shop for Home Loans
Everybody knows you’re supposed to shop around when you’re applying for a mortgage. But how you do that?
Home Loan Providers
There are direct lenders (your bank), mortgage banks (banks that only provide mortgages), correspondent lenders (a hybrid between a direct lender and a mortgage broker) and mortgage brokers.
And, there’s a lot of each. Each liking one type of borrower more than others.
Mortgage brokers work with many wholesale lenders, so they have access (at least in theory) to the largest number of programs.
Direct lenders lend their own money and provide you only their own mortgage programs.
The other two can work with more than one investor, so they can have more programs than your bank or credit union though not as many as brokers do.
So, if you’re not in the best position, you’re better off working with a broker.
Whether you choose to work with a broker or not, the important part of shopping for a loan is to get at least 3 loan officers to give you a loan estimate.
Here’s where people go wrong:
The LE (loan estimates) should come at the same time… Because mortgage rates change often, sometimes more than once a day.
A broker or bank that promises you a 4.25%, 30-year , fixed, FHA loan on Tuesday morning may or may not be giving you a better rate than the one giving you 4.50% on Wednesday afternoon for a 30-year, fixed, FHA loan.
I know it’s hard to coordinate so that the LE’s are issued at about the same time, but it’s possible. You do have to have your documents ready and ask at about the same time.