I am about to show you how to shop for mortgage loans. But first: Full Disclosure: Home Loan Mine is not a hobby. It used affiliate links to keep the pay its bills. Many of the links here are affiliate links. If you register or buy anything through one of those links, I will get a small commission. With luck, it will be enough to feed my imaginary capuchin monkey pet.
There are two important reasons why knowing how to shop for a mortgage is important.
- to find the right product for you (the table below breaks down the most common mortgage product types by group.
- to get the lowest rate or closing costs (whichever is your goal – yes, sometimes the lowest rate is not the best option).
|Government Loans||Conventional Loans|
|Government loans are more expensive than conventional loans but they have lower interest rates.||ITIN Loans|
|Refinance Loans||Purchase Loans||Fixed Rate Loans||ARM’s|
|Balloon Loans||No-Interest Loans||QM Loans||Non-QM Loans|
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, by anything they can think of.
So, we end up with many loan options, some better for a particular borrower than others.
Which makes asking How to shop for mortgage loans an important question.
How to Shop for Mortgage 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 when they shop for mortgage loans.:
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 (loan estimates) 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.
Now that you know how to shop for mortgage loans, you might want to learn the answer to another good question: Why should you check your credit score regularly.