How To Choose A Mortgage Lender in Missouri
Shopping around for a competitive mortgage that meets your needs might not be the most glamorous aspect of home-buying, but it certainly is one of the most important—without financing, most Americans would never have the opportunity to buy their own home. But navigating the process of finding and applying for home loans can be a daunting task in the age of online lenders and strict application requirements. In this post, we’ll explore the ins and outs of securing home financing—from choosing a reputable lender to finding a product that meets your needs—and explore several home loan options available to residents of Missouri and Iowa. Read on to learn more about getting the right loan for you!
Before You Start: Know Your Credit
It’s important to note that before you even begin shopping around for a loan, you absolutely should obtain copies of your credit report and score. Some online mortgage estimates will require you to know your approximate credit score. Additionally, knowing in advance where you stand will give you a better idea of what kinds of loan products you should seek, and possibly give you a chance to dispute any errors you find or make small, quick improvements before a lender gets their hands on it. You can visit annualcreditreport.com to learn how to review free copies of your credit report online.
Pre-Qualification vs. Pre-Approval
When you first start looking for homes, your real estate agent might request that you get a pre-qualification from a lender to get a ballpark idea of your budget. Pre-qualification is an optional preliminary step in the loan application process where the lender gathers basic information about your finances from you, but doesn’t do much in the way of confirming this information. Keep in mind, for most sellers today a pre-qualification letter is the bare minimum required for them to even consider your offer.
Getting a pre-approval, which is essentially like applying for a mortgage but without a specific house in mind, is a much more-thorough process. The lender confirms your financial information through bank records and pay stubs and provides a letter stating that you have been approved for financing. When you’re ready to put an offer in, you can request the lender create a new pre-approval letter for a specific amount. Pre-approvals do expire but can be good for anywhere from 60-180 days.
Although you can look around for different rates and loan products at any time, it’s at this step in the process that it is extremely beneficial to seek out multiple pre-approvals. According to the Motley Fool, shopping around “doesn't just mean speaking with a few lenders. It means taking the time to complete the pre-approval process with at least a few lenders in order to compare the loan terms each one offers you.” The two major items to consider when you compare loans are upfront costs and APR.
Understanding Upfront Costs
Within three days of seeking a pre-approval for a loan, you’ll receive something called a “Loan Estimate” that has a general idea of costs you’ll face. By law, lenders can’t charge you any fees (except maybe for a credit check) before they provide you with this estimate.
As the Consumer Finance Protection Bureau (CFPB) explains, the Loan Estimate Form will give you information needed to compare loan products, including “the estimated interest rate, monthly payment, and total closing costs for the loan” other estimated costs, from insurance to taxes, as well as any special conditions (for instance, penalties for paying the loan off early).
Understanding costs you will face at closing is essential, as certain fees can vary widely from lender to lender. For example, the origination fee usually ranges from .5-1% of the total mortgage cost. On a mortgage of $250,000, finding a loan with a .5% will save you $1,250 over one with a 1% fee (and some lenders may not even charge an origination fee at all!). Consider that whatever cash you save on fees can be applied to your down payment or used for purchasing points to pay down interest. Finding a loan with low fees will not just save you money up front, but has the potential to save thousands of dollars over the life of the loan. Explore the CFPB’s “Loan Estimate Explainer” to learn more about how to read and compare fees on Loan Estimates forms.
APR and Interest Rates
As mentioned above, the Loan Estimate not only includes fees and upfront costs, but also interest: both the interest rate and APR (Annual Percentage Rate), a combined cost of both interest and annual fees. Comparing interest and APRs is where some of the biggest savings can be had when shopping for loans.
In fact, all loan estimates have an easy-to-read table called “Comparisons,” which can be used to quickly weigh the costs associated with several different loan pre-approvals. This section includes total costs for five years, the APR, and interest you will pay, as a percentage of the whole loan amount.
Comparing the APR of multiple quotes can save you a lot of money down the line and should be weighed against upfront cost savings. Freddie Mac found that “Eighty percent of borrowers who obtain one additional rate quote while shopping for a mortgage will save between $966 and $2,086 over the life of their loan.” And according to NerdWallet’s recent homebuyer report, buyers who got five quotes were able to save on average $400 in the first year alone. The more quotes the better but aiming for five may end up getting you the best deal.
The Third Criteria: Choosing a Lender You Can Trust
If you see a desirable rate advertised but are unfamiliar with a lender, it’s important to be sure you are dealing with a reputable company before you start the application process. US News and World Report and Consumer Affairs both publish ratings of lenders, and are good places to start.
Additionally, watch out for red flags with your individual loan officer once you’ve decided to apply. After a few exchanges you may be able to gauge how dependable they are; a good loan officer is one who is responsive to your communications, thorough in the pre-approval process, and has the expertise to navigate any hiccups you might encounter in the stages from offer acceptance to settlement day. Imagine finding your dream house only to lose it because of a delay or overlooked item in the application! When mortgage terms and rates are comparable, the quality of the lender and their ability to meet your needs should be the deciding factor in your choice.
Know What Kind of Lender You Want or Need
As you begin shopping around for loans, you will likely encounter advertised products from a number of different mortgage providers. Depending on your specific situation, some may be more appropriate for your needs than others. Here are some of the most common home loan providers, as well as what to expect from their services:
- Mortgage Lenders: Companies that focus solely on loans for real estate, often found through online advertisements. Because mortgages are their specialty, they can move quickly and efficiently and can often offer competitive rates. However, they will not be able to provide other banking services, and may be limited on their offerings (for instance, many mortgage lenders do not offer FHA loans). Use these lenders if you’re looking for a competitive, conventional mortgage on a short time frame.
- Mortgage Brokers: Not lenders, but independent, licensed professionals that work with lenders to find you a good loan tailored to your specific circumstances and needs. Can cost more if the lender won’t pick up their fees (usually 1-2%), and sometimes the process can take longer, but they may be able to find the right product for you when other lenders fail.
- Banks and Credit Unions: Offer a variety of financial products under one roof, and can streamline the process of application if you are already a customer or member. Some banks and credit unions are portfolio lenders, which means they use funds from their client’s deposits to issue loans, allowing them to keep the loan in house. Other times they may act as correspondent lenders, originating the loan but selling it to a larger lending institution after closing. Larger banks may advertise loans online nationally while smaller institutions tend to work within their community. Applying for a loan through your home bank can be beneficial, especially if they offer a variety of in-house and government backed products. However, some financial institutions may have stricter loan approval terms, fewer options, or less-competitive rates. If you’re not sure, however, they are the perfect place to start.
Loans for Missouri and Iowa Residents
Missouri Housing Development Commission (MHDC)
MHDC’s First Place Loan program offers home loans for first-time homebuyers and qualified veterans, “often at an interest rate lower than market rate loans.” Missouri first-time homebuyers and veterans may also qualify for Non Cash Assistance or Cash Assistance Loans (where a portion of the loan may be used to cover the down payment and closing costs. You can apply for any of these programs through local, participating banks.
Iowa Finance Authority (IFA)
The IFA offers numerous programs for eligible homebuyers through their local banks as well, including the FirstHome Program which offers low-interest loans with low down payments, the Homes for Iowans Program, which offers loans for eligible borrowers who may not get approved for conventional loans, as well as Firsthome, a down payment assistance program.
Home Loans through BTC Bank
BTC Bank offers a full range of home loan products for residents of Missouri and Iowa and is proud to serve our local communities.
Government-Backed Loans through BTC
Guaranteed by the federal government, these loans allow banks to issue mortgages to specific eligible buyers including veterans and first-time homeowners without a large down payment. Available products include VA Loans for eligible service members, veterans, and surviving spouses and USDA Loans, which help low-and moderate-income buyers purchase homes in rural areas.
BTC also offers a number of conventional home loans, including:
- Adjustable Rate Mortgages: Loans with an initial fixed interest rate. After a certain length of time, the interest rate will change based on market index rates.
- Fixed Rate Mortgages: These traditional loans, varying in length from 10-30 years, have a locked rate, which will never change over the life of the loan.
- Home Equity Loans: Equity, which is the value of your home, minus the amount of any outstanding loans, can be used to obtain a new loan at low interest rates.
Questions To Ask Your Lender
No matter where you apply, you will be working in person with your own loan officer. It’s important to discuss questions and concerns and utilize their expertise to help you navigate the process. If you work with a major national lender, it will probably be over the phone or through email. Professional local lenders are generally more accessible and can meet with you in person to explore a variety or products to help you find just the right one.
Here are a few questions that you should ask your lender before or during the loan application process:
What kind of mortgage would work best for me?
There are many types of mortgages out there, from conventional mortgages to FHA loans for first-time buyers, loans with fixed rates and adjustable rates, and loans with a variety of different term lengths. Work with your lender to understand the advantages and disadvantages of each loan option.
What assistance programs do I qualify for?
We discussed several options above, but your lender may be able to help you apply for or find additional special loan programs that meet your needs. Some assistance programs may even be combined to maximize benefits. As many programs are specific to location, this is where community lenders can be especially helpful.
How much down payment will I need?
Although 20% is always recommended, most buyers, especially first-time homebuyers, are unable to come up with that much money upfront. Lenders will be able to show you your options for loans with lower down payments, and explain the potentially higher costs, including private mortgage insurance, associated with lower down payments.
What will my interest and annual percentage rate be? Should I lock in my interest rate?
Your lender will help you understand both the base interest rate and the APR, as well as what is included in the APR and the factors that go into deciding your interest rate. One important point to remember is that the bigger the difference is between the base interest rate and the APR, the more the lenders are charging in fees.
Also be sure to discuss locking in your rate if you suspect the interest rates could change. When you lock in your rate, your interest rate won’t change even if the interest rate increases before the lender processes the loan. Locking your rate could save you money if interest rates increase, but it could also mean you end up paying more if interest rates go down.
What are the associated costs?
Have your lender explain all the costs on your Loan Estimate, including the appraisal, credit check, title fees, home inspection fees, and taxes. Some of these fees may be negotiable, so don’t hesitate to ask!
Who will service my fixed-rate home loan?
Unlike other banks and mortgage lenders, BTC Bank partners with the servicer of your mortgage so we’re always there for you. That means that, instead of being forced into making remote payments to an entity you’ve never heard of, you’ll be able to visit your local BTC Bank branch any time during the life of your loan to make a payment, ask questions, etc.