How Do I Find A Mortgage Lender? The Chicago Home Buyer Guide
So, you’re ready to seriously prepare to buy a home. You have your wishlist set and a Pinterest board full of inspiration if that’s your thing, but there’s one more thing you must do before you start home shopping: find a mortgage lender. The financial side of home buying may not seem as glamorous, but it’s imperative that you understand how much house you can really afford before you even start shopping around.
How should you go about finding a good, trustworthy lender? Here are our tips on getting started and what you need to know along the way to finding the best mortgage lender for you.
Step 1: Finding the right lender.
If you want to get a loan, you first need to find a lender who can preapprove you for said loan. If you’re working with a great real estate agent (like anyone on the Ben Lalez Team), they should be able to refer you to at least two. If they can’t, that might be a sign to find someone else to guide you through the home buying process.
The next step is to start scheduling calls with multiple lenders — we recommend at least three lenders. You may want to also consult with whoever you bank with for another opinion. Engage all three lenders until you find the best mortgage for you and a person you like working with. A great lender can make a big difference in how smoothly your home buying process, and your mortgage process, go.
Step 2: Asking the right questions.
To make sure you’re picking the right mortgage lender, there's nothing wrong with asking some tough questions and being critical about the information they’re giving you. And there's so much more to take in than just what your monthly mortgage payment will be. Think of it like you’re getting a second opinion on a surgery. You should feel comfortable asking questions like “Why did lender B or C quote me X interest rate, and you're quoting me Y interest rate?” Make sure you compare loan estimates and understand the differences between them.
You can also ask questions like “What are the advantages and disadvantages of a higher versus lower down payment?”, “Should I do a 15-year mortgage or a 30-year mortgage, and how will that impact my monthly payment?” or “What's the difference between an adjustable rate mortgage and a fixed rate mortgage?” Experienced mortgage brokers can guide you through all aspects of the process, so make sure they know their stuff.
Step 3: Make sure you know the terminology.
Make sure you understand the fees and definitions of things like principal interest, property taxes, reserves, escrow, and PMI, to name a few. We’ll give you some info to get started:
Principal Interest: The principal on your loan is the total amount of money you borrow to pay for your home, not including interest.
Property Taxes: Taxes that you’ll pay on your home, which are calculated using the property value and the city’s tax rate.
Mortgage Reserves: In mortgage terms, reserves are assets (like cash), outside of your closing costs and down payment, that you could use to pay your mortgage if you needed extra funds.
Escrow: A legal arrangement where a third party temporarily holds money until a condition has been met (like the fulfillment of a purchase agreement).
PMI (Private Mortgage Insurance): Private Mortgage Insurance is something you may have to purchase on conventional loans if your down payment is less than 20% of the home’s purchase price.
Conventional Loans: A conventional loan is any home loan that is not insured by the government.
FHA (Federal Housing Administration) Loans: An FHA loan is a mortgage that is insured by the government. FHA loans typically don't require a high down payment, and you can get away with having a lower credit score with these.
VA Loans: VA loans are mortgages available through the U.S. Department of Veterans Affairs. They allow veterans and service members to buy homes with a very small (or no) down payment without needing PMI (Private Mortgage Insurance).
Origination Fees: An origination fee is a cost that mortgage brokers will charge you in order to process your loan application.
Fixed Rate Mortgages: Fixed rate mortgages mean that your mortgage rates will not change over the life of the loan. These home loans are predictable, which makes them very popular among home buyers.
Adjustable Rate Mortgages: Adjustable rate mortgages mean that your interest rate can change over the life of the loan. It's fixed for an initial period of time and then can move up or down based on an index.
Before you get off the phone, your mortgage lender really should be able to answer these and make you feel like you have this completely under control. It helps to go in with background knowledge, but you’re not responsible for being an expert — your real estate team is. A great real estate agent and a great mortgage broker are the one-two punch of having a great experience buying your new home.
In conclusion...
Choose a mortgage lender that makes the process feel straightforward and stress-free. This whole exercise is in an effort to understand your buying power, and once you understand your buying power, that's when the real fun begins.
Click here to watch the full video on finding the right lender, and don't forget to check out the rest of our Chicago Home Buyer's Guide on YouTube!
