How to apply for a mortgage: Your 4-step guide – 2



Source : Open Listings (This article originally appeared on OpenListings.)


Step 2: Select a lender to work with

There are two types of lenders you can work with (1) big lenders (aka the bank) or (2) small lenders (aka small, community banks or small mortgage lenders).

There are pros and cons associated with each type of lender:

Pros of big lenders:

  • Security: You can trust that big banks will protect your sensitive information as it’s a crucial part of their reputation.
  • Customer support: Banks usually offer 24/7 customer support.
  • Availability: Making an appointment for a loan will be easier with big banks as they have a larger number of loan officers available.

Cons of big lenders:

  • Rates: The rates of the big banks are usually higher than the rates at small loan offices.
  • Approval: Banks have a specific ‘credit model’ that they like to use as a guideline for approving people looking for loans. You may have a hard time being approved for a loan by a big bank if you don’t fit this ‘credit model.’

Pros of small lenders:

  • Rates: Small lenders tend to have better rates than the big banks. Furthermore, smaller lenders generally let their customers exit early. In other words, small lenders allow their customers to pay off their mortgage early and either sell their house or find a better mortgage.
  • Approval: Small lenders will generally approve loans to freelance workers, property investors, or someone who doesn’t fit the bank’s credit model.
  • Customer Service: Small lenders provide more personalized customer service and usually have faster response times.
  • Specialized Financing: Smaller lenders offer more specialized financing options than big banks. For example, if you’re looking for a small mortgage, most big banks won’t accept your application because it’s not worth their time. The smaller lender, however, will be happy to work with you.

Cons of small lenders:

  • Vulnerability: Due to their size, small lenders are more sensitive to market fluctuations.
  • Availability: Smaller lenders may not have as many available lenders as the big banks.

Should I get pre-approved by multiple financial institutions to compare rates?

  • Yes, because you can still shop rates before locking into a rate and accepting an offer. Research different lender’s reputation, search for their past clients, read their online reviews, and give them a call to get a ‘feel’ of whether or not you want to work with them.