Where you choose to buy your new mortgage, or refinance your existing one, obviously affects the rate you pay and other terms of the loan. But at stake, too, can be how smoothly the vendor handles the application process, including how adequately they address your questions and concerns. And after you receive the mortgage, you’ll of course want a lender that’s easy to work with over the course of a financial relationship that could last for decades.
No one type of mortgage provider dominates our list of the best mortgage lenders. Instead, the ideal choice for you depends a lot on your knowledge about mortgages, the time you have to available for the search, and the mortgage type you’re seeking. Here are 5 questions to help you narrow the options:
How much help do you need with the choice? One mortgage-buying option is to hire a mortgage broker to narrow the field for you. The broker shops the various options on your behalf, and then presents a best choice, or sometimes a shortlist of choices, based mostly on interest rate and other financial terms.
As a rule, you don’t pay the broker for their services; rather, the successful lender typically pays them a finders’ fee, for bringing your business to them. That arrangement can, however, create a conflict of interest were a broker to favor some lenders over others based more on their finders’ fees than the terms they offer to you. Also, since the broker will work only with certain lenders, mostly those that offer them fees, there’s no guarantee they’ll find a better mortgage rate and other terms than you might do on your own.
Going with a broker, then, makes the most sense for those who lack the time or inclination to shop for a mortgage on their own. Even then, it may make sense to do some research first, beginning with your own bank.
What’s your relationship with your bank? Unless you actively dislike your bank (in which case, perhaps you should be shopping for a new bank, too), the institution that handles your personal banking should be one of the first stops on your mortgage search--and maybe the first, period.
That’s especially the case if you have a personal relationship with any of the staff. But checking with your bank is worthwhile even if it’s little more to you than a place to withdraw cash from an ATM and a portal for your online banking. Chris Moon, ValuePenguin's mortgage analyst, suggests starting your mortgage search by speaking with your bank. "Applying for a mortgage with your current bank could give you access to special relationship rates, and it also gives you an initial baseline on what to expect, even if you might eventually move on to using a broker." Choosing them might also streamline some logistics, too, including simplifying the set-up of automatic payments on the loan from your savings account.
How important is face-to-face help? If you’re old school, and prefer transacting across a desk from a representative to chatting on the phone or online, you’ll naturally favor a lender that still has offices, with desks and people who sit at them. But if that doesn’t apply to you, you should at least consider getting a mortgage from an online lender. The choice of vendors is wide, and the absence of overhead from those offices and people may allow for favorable rates. (To underline that point, online banks currently offer the highest rates for savings accounts.)
Are you a military veteran? For most veterans who qualify to receive one, a mortgage obtained through a Veterans’ Administration lending program is typically the most cost-effective option. As Moon points out, VA loans often allow veteran applicants to access home financing with no down payment—a rare opportunity not available in the larger mortgage market.
Some banks, even as they offer mortgages and other loans to all consumers, actually specialize in serving veterans who are interested in these VA programs. Among those is J.G. Wentworth, which is our top choice for a mortgage if you’re a veteran, in part because of the company’s familiarity and experience with the VA’s programs.
Will a traditional down payment be a stretch? Coming up with 10% or more of the value of a home as a down payment is a high bar for some buyers. Alternatively, or in addition, you may lack a credit score that’s high enough to qualify you for a traditional mortgage.
If you’re in either group, you’ll need to consider a mortgage that’s insured by the Federal Housing Association. While the rate can be higher than for a conventional mortgage, and the maximum principal you can receive lower, an FHA loan demands a smaller minimum down-payment—as little as 3.5%—and a less stellar credit record.
As with VA loans, some banks offer more favorable rates and better service for FHA loans than do their competitors. Lenders such as PennyMac focus specifically on those who need an FHA-backed mortgage.