When embarking on your homebuying journey, it’s highly beneficial to engage with multiple lenders to explore the loan options and programs that best align with your unique financial situation and goals.
Start with Your Bank
As you begin compiling a list of potential lenders, consider your current bank. National banks, such as Wells Fargo, frequently offer exclusive incentives and unique loan products for their existing customers. These can include:
- Low-down payment loans: For example, Wells Fargo offers a fixed-rate Dream. Plan. Home.® mortgage loan with as little as a 3% down payment for qualifying first-time homebuyers, and 5% for other borrowers. This program is designed for borrowers earning up to 80% of their area’s median income and may offer lower mortgage insurance premiums.
-
Closing cost incentives: Wells Fargo also provides a Dream. Plan. Home.® closing cost credit of up to $5,000 for eligible buyers purchasing a primary home in specific areas. This credit can be applied towards one-time closing costs like appraisal, title, and recording fees. This program is for borrowers with income at or below 80% of the area median income (AMI) where the property is located.
- Special homebuying programs for first-time homebuyers: Wells Fargo’s Homebuyer Access® grant provides $10,000 in down payment assistance. This grant is available in select locations to eligible borrowers earning up to 120% of the area median income in the county where the property is located. It can be combined with other programs, including the Dream. Plan. Home.® closing cost credit, potentially offering up to $15,000 in combined assistance.
- Relationship mortgage discounts: Wells Fargo offers interest rate discounts based on eligible assets of $250,000 or more held with the bank, potentially leading to lower interest paid over the life of the loan.
Leveraging an existing relationship can offer convenience and potentially better terms. If you’re still undecided after checking with your bank, don’t hesitate to ask your personal network of friends and family for referrals.
How to Evaluate Different Lenders
As you gather recommendations and begin your research, your list of potential lenders will likely include five common types:
- National banks: Large institutions with broad product offerings and extensive branch networks.
- Regional and community banks: Smaller, localized banks that often offer personalized service and may have more flexible underwriting for unique situations.
- Credit unions: Member-owned financial cooperatives known for competitive rates and good customer service, though membership requirements may apply.
- Mortgage brokers: Intermediaries who work with multiple wholesale lenders to find various loan options for borrowers.
- Online-only mortgage lenders: Digital-first platforms that often boast streamlined applications and competitive rates due to lower overhead.
While federal guidelines provide a universal framework for mortgage loans, each lender is unique. Some specialize in certain loan types, offer varying services, or provide specific first-time homebuyer programs or closing cost grants.
One effective way to evaluate your options is to understand the key differences between these lender types:
National Banks
- Products: National banks typically offer a wide array of home loans to meet diverse borrowing and investment needs. For instance, Wells Fargo provides various options including payment assistance grants like the Homebuyer Access® grant and programs like Dream. Plan. Home.® that assist with closing costs.
- Services: These banks often provide a comprehensive suite of financial products. Using a national bank for your mortgage, especially if you already have accounts there, can be convenient for managing all your financial needs in one place. They offer extensive online loan management capabilities and often have numerous brick-and-mortar branches, catering to those who prefer in-person interactions.
The industry standard recommendation is to consult with at least three lenders before making your final selection. This approach allows you to weigh the pros and cons of each and choose the one that best aligns with your needs.
Key Areas When Comparing Lenders
When comparing lenders, focus on these four critical areas:
- Loans Offered: Ensure the lender provides the specific type of loan you’re looking for (e.g., FHA, VA, conventional, jumbo, etc.).
- Special Programs: Inquire about any special programs designed to help homebuyers, particularly first-time buyers, such as down payment assistance grants or closing cost credits.
- Estimated Interest Rate and APR: Based on your chosen loan and financial profile, get a personalized estimate of your interest rate and Annual Percentage Rate (APR). Remember, APR includes interest plus most fees, giving you a more complete picture of the loan’s cost.
- Origination Fees: Understand the origination fees you are likely to incur when you submit a loan application. These fees can vary, so ensure transparency.
Where Does the Loan Officer Come In?
Once you’ve evaluated lenders and narrowed down your list, you’ll be assigned a loan officer when you’re ready to submit a loan application. This individual will be your primary contact, answering questions, explaining required documentation, and working diligently behind the scenes to ensure a smooth homebuying experience.
Tips to get the most from your relationship with your loan officer:
- Engage Early: Involve a loan officer early in your home search, even before you find a specific property. This proactive approach helps you understand your borrowing capacity and avoids potential disappointment if you fall in love with a home you can’t finance.
- Set Your Budget: Be transparent about the monthly mortgage payment you can comfortably afford and the amount you’ve budgeted for origination fees and closing costs. This ensures your loan choices align with your financial goals.
- Set Communication Methods: Clearly communicate your preferred method and times for contact. This helps ensure timely submission of documents and responses to inquiries, preventing delays in securing loan approval.
- Ask Questions: Always thoroughly review your Loan Estimate document. Do not hesitate to ask about any loan details you don’t understand, including lending fees, rates, commissions, mortgage points, and any fine print. Ensure you’re confident in the answers before signing.
By engaging with a mortgage lender early in your home search, you gain access to up-to-date information on borrowing options, allowing you to confidently focus on homes that fit your budget and financial goals.