Choosing the best mortgage company

For lots of people, buying a home comes part and parcel with the American dream. And under most circumstances, searching for the perfect new home can be a fun experience. But finding the right mortgage company to finance that home can be a little tricky.

If you sign on with a quality mortgage company, the home-buying process should proceed like a dream. A great mortgage company simplifies the experience for you. It helps you figure out how much house you can afford, and perhaps more importantly, it helps you sort out the confusing avalanche of numbers and jargon that accompany any home purchase.

If you sign on with a bad mortgage company, however, you’re in for a torturous ordeal. The loan process will likely take much longer than it should. Extra phone calls, red tape, and paperwork will leave you feeling burdened rather than elated by the purchase of your new home.

At BestReviews, we want our readers to find just the right mortgage services company for their needs. We don’t want you to waste your money or time struggling with a sub-par mortgage service.

That’s why we compiled this shopping guide. We understand that consumers may need a little help getting the information they need about the mortgage acquisition process.

With the right mortgage in hand, you can focus on finding your dream home rather than sweating out the numbers.

So please read on to learn more about finding the best mortgage company for your next home-buying venture.

Before choosing a mortgage company, you can take a few steps to speed up the home-buying process. Being prepared ahead of time will impress your loan officer, too.

First, determine whether you want to use your loan money to refinance an existing mortgage or buy a new home.

If your goal in finding a mortgage company is to refinance a current mortgage, first look at your current interest rate. Find out the length of the existing loan and the payout amount you owe. You’ll be able to negotiate more effectively with this information in hand.

If you’re seeking a mortgage in order to buy a house, don’t look for a house first. Instead, find out the loan amount for which you qualify.

You can do this by gaining “pre-approval” for a certain loan amount from a mortgage company service.

By doing this, you won’t waste time looking at homes outside of your price range.

To qualify for a mortgage, you will need to produce documents that verify your financial situation. Lots of them.

Collect your last two or three tax returns, recent pay stubs, and proof of any other income streams. Those are the basics.

Depending on the lender and your personal situation, you may have to produce other documents as well.

Start looking for the right mortgage company with an online search. You can find information about rates, types of loans, and service areas on the internet.

Bear in mind that the mortgage company offering the lowest interest rate may not necessarily be the best mortgage company for you. Depending on your needs, you’ll want to evaluate a few other aspects of a potential lender (beyond interest rate) before proceeding with a loan.

Some mortgage companies have a maximum amount they will lend on a property. Others will only handle certain loan amounts if government programs or agencies are involved.

The down payment is the percentage of the purchase price which you pay upfront.

Some mortgage companies will only accept a down payment of 20% or higher, while others will negotiate this percentage.

You can make a lower down payment if you’re willing to pay for private mortgage insurance, also known as PMI.

Some mortgage companies make you pay points, which involve a percentage of the overall loan, or other fees. On a $150,000 mortgage, one point would cost you $1,500. Some lenders allow you to roll these fees into the overall loan, but others want you to pay them upfront.

A 30-year mortgage is the standard loan length. However, some mortgage companies offer loan lengths ranging from 10 to 40 years. Find the company that offers the right loan length for your needs.

Some mortgage companies excel in the financing of certain property types. For example, if you want to upgrade an older home and roll the renovation costs into the mortgage, certain mortgage companies specialize in this type of loan.

You’ll want to know how fast the mortgage company completes tasks such as pre-approval, appraising a property, and closing. You certainly wouldn’t want to lose a property because your chosen mortgage company is too slow on pre-approval, for example.

Find a company that will offer you the type of rate that works best for your situation.

A fixed-rate mortgage locks the interest rate for the length of the loan.

An adjustable-rate mortgage is slightly different; the interest rate you pay fluctuates over the length of the loan.

Most of the below home-buying errors can be avoided with just a little bit of work on your part.

You wouldn’t go to a car dealership and pay the list price immediately. Instead, you’d browse other dealerships and maybe negotiate a deal. (After all, you could save several hundred dollars in the process.) Do the same thing with your mortgage company. By shopping around for the right product for your needs and negotiating the best rate, you could shave several thousand dollars off the loan.

Mortgage companies and brokers use a lot of jargon and acronyms.

Don’t feel embarrassed if you don’t understand something. You need to know exactly what everything means in order to avoid problems down the road.

Some people make an honest mistake in omitting something from the mortgage company in the initial meeting.

Try to be as thorough as you can with the broker at the first meeting. If you omit something, the mortgage company will find it eventually, and you may have to start the entire home-buying process over again.

• If you have a high credit score, you will have more success trying to negotiate a lower interest rate on your home loan.

• Always read the fine print on your mortgage documents. Don’t be afraid to ask questions if you don’t understand something.

• Paying for points may allow you to receive a lower interest rate, which in turn saves you money over the length of the loan.

• Most lenders require you to pay for private mortgage insurance (PMI) if you don’t have a 20% down payment. This protects the lender in the event that you go into foreclosure.

• Applying for a mortgage requires you to organize your financial records. You’ll need tax returns, pay stubs, and other documents that prove you can handle the loan payments. It may be helpful to organize all of these documents in a binder before you begin the search for a mortgage company.

• One mortgage company may give you a quote with a low interest rate but higher fees. When comparing that quote to another company’s quote, the figures may not line up exactly, leading to confusion. Compare each component of your mortgage offers head-to-head so you can determine which is the better deal.

Q. Why am I forced to use private mortgage insurance (PMI)?

A. Mortgage companies often force borrowers to pay for PMI, or private mortgage insurance, when they have less than 20% equity in the home. PMI can add an additional one percent in annual costs to your mortgage payment. To avoid PMI, either come up with a minimum 20% down payment on the property or try to negotiate removal of the PMI.

Q. Should I lock in an interest rate?

A. Some mortgage companies allow you to lock in an interest rate after you’re pre-approved. This may be a good idea, as it protects you from rises in rates as you’re looking for a home. Find out how long the mortgage company will hold your locked rate. Additionally, make sure that if rates drop during your house-hunting period that you will receive the lower rate rather than the higher, locked-in rate.

Q. What amounts appear in the monthly payment?

A. Your monthly mortgage payment consists of an interest payment and a loan principal payment. For most people, the mortgage payment also includes home insurance costs and property taxes, as the mortgage holder pays these. Some people will have a PMI payment included in their monthly payment, too. Your mortgage company will be able to explain all of these costs to you.

Buying a new home is an exciting yet daunting process. The right mortgage company will help you through the experience, simplifying jargon and offering you the best possible package of terms and services. Don’t settle for second best; use the information provided in this article to guide your search for the right mortgage company.