Before choosing a mortgage, it’s important to look around for the best possible mortgage rate, term, and fees. A mortgage will most likely be the biggest loan you take on in your life, which will require you to make payments for several years. Check out our list of top mortgage lenders and reach out to multiple lenders to compare costs.
Completely online with fast funding
SoFi has made life easier by removing paperwork nightmares. You can complete your mortgage application online and also receive financing without ever meeting a loan officer in person. our purchase application can close in less than 30 days, which is one of the fastest in the industry.
What we like
- No hidden fees
- Online application and funding
- Extremely fast financing
- Flexibility in mortgage requirements
- Investment properties eligible
- Membership discounts
What we don't
- No Jumbo, FHA, VA, and USDA loans
- It's not available in all states
Low cost lender with quick preapprovals
Figure mortgage refinancing may allow you to get better terms on an existing mortgage or take cash out. It includes rate and term refinance, and cash-out refinancing on both conventional and jumbo loans. Loans applications are 100% online, facilitating fast closing and funding time, and can be quickly done via their website or by using its mobile app. After the lender does a soft credit pull and pre-qualifies you, you will receive a quote.
What we like
- Get pre-qualified without affecting your credit score
- Digital experience with online application and funding
- Secondary homes can be considered for refinancing
- No origination fees or late payment fees
- No prepayment penalties
- Closing costs can be financed into the loan
What we don't
- Only single family homes and townhomes are eligible
- It's not available in all states
Figure Lending LLC dba Figure. 15720 Brixham Hill Avenue, Suite 300, Charlotte, NC 28277. (888) 819-6388. NMLS ID 1717824. For licensing information go to www.nmlsconsumeraccess.org. Equal Housing Opportunity. Licensed in Alabama 22533, Alaska AK1717824, Arizona 0948458, Arkansas 114692, California: Loans are made and arranged pursuant to a Finance Lenders Law License, Licensed by the California Department of Financial Protection and Innovation under the California Finance Lenders Law (License 60DBO81967), Delaware 026994, Florida MLD1636, Georgia Residential Mortgage Licensee 61229, Idaho MBL-9625, Indiana 39933, Iowa 88893478 and 2018-0048, Kansas MC.0025537 and SL.0026703, Louisiana 1717824, Massachusetts Mortgage Lender License ML1717824, Michigan FL0021494, Mississippi 1717824, Missouri 19-2421, Montana 1717824, Nebraska 1717824, Nevada 4823, New Hampshire 22423-MB, Licensed by the N.J. Department of Banking and Insurance, New Mexico 1717824, North Carolina L-180811, North Dakota MB103310, Ohio RM.804317.000, Oklahoma ML011894, Oregon ML-5698, Pennsylvania 66882, South Dakota ML.05202, Tennessee 151185, Washington CL-1717824, West Virginia ML-36248, Wisconsin 1717824BA
Customer centric lender with fast closing times
Academy is a direct lender who loan processesing, underwriting, and funding are handles in house. It also has flexible mortgage requirements and specialists who can guide you through out the mortgage process.
What we like
- Provides competitive rates
- Fast closing times because of in house loan processing
- Dedicated loan officer to help you from start to end
- Wide selection of loans to match your needs
- Flexible requirements to fit your financial situation
What we don't
- Not available in New York
- Application is not completely online
What are the requirements for a mortgage?
Home sellers require a pre-approval letter from buyers indicating their willingness to buy a home. A pre-approval letter confirms that your lender has checked all the requirements and verified your application for approval of a certain loan amount. A lender requires the following items to pre-approve your mortgage:
- Proof of income: Most lenders require W-2 wage statements for the past 24 months that show your year-to-date income and tax returns.
- Proof of assets: You need to obtain bank statements for your checking, savings, and investment accounts. This guides lenders in determining if you have funds for the downpayment, origination fee, and other related costs.
- Good credit: Credit scores vary depending on the type of loan and lender. Generally, a credit score of 620+ is required for conventional loans. Borrowers with good credit scores enjoy lower interest rates whereas low credit scores tend to get higher rates.
- Employment verification: Most lenders give consideration to borrowers with stable employment and will contact your employer to verify your status and salary. Self-employed borrowers will need to provide additional paperwork in regards to their business and proof of their income stability.
These items vary in terms of minimum or maximum depending on the lender and type of mortgage.
How does the mortgage process work?
A mortgage is a loan for real estate purchases when buyers are unable to make a full purchase upfront. Instead, a mortgage allows you to make payments to finance your home. However, obtaining a mortgage can sometimes be tedious for first-timers. To familiarize yourself with the process, we have described some important terms below:
- Pre-qualification: The lender evaluates your ability to qualify for the mortgage and helps the lender to determine the borrower’s loan limit and terms.
- Co-borrower: If you do not qualify for a loan due to low credit or poor financial history, you may need a co-borrower with a good credit history and debt to income (DTI) to improve your chances. Both the borrower and co-borrower are obligated to pay off the mortgage loan, and the names of both individuals appear on the title of the property.
- Interest rates: This refers to the amount a lender charges on the mortgage loan. This amount is often expressed as a percentage of the principal amount. Interest rates are noted annually and termed as annual percentage rate (APR).
- Origination fee: Borrowers are sometimes required to pay a fee to process their loan application based on a percentage of the loan.
- Fixed-rate mortgage: Fixed-rate mortgage loans have a specific interest rate for the entire term of the loan. For instance, if you have a mortgage plan of 30 years with a 5% interest rate, the 5% will apply for the full 30 years. Fixed-rate mortgages range between 10 and 30 years, depending on your provider and terms.
- Adjustable-rate mortgage: Also known as a “variable-rate”, this type of mortgage will have a fixed rate for the first few years and change to a fluctuating rate based on market dynamics. For instance, if you have a 5/1 ARM, you will pay a fixed rate for the first 5 years (indicated by “5”) and your rate will adjust annually (indicated by “1”) until the loan is paid off. Some mortgage providers have a rate cap that limits the monthly payments from exceeding specific amounts.
What are the types of mortgages?
There are several types of mortgages, which vary based on their terms and requirements. They include:
Conforming mortgage loans
The Federal Housing Finance Agency creates standard rules that guide the mortgage loan limit (below $484,350 in most US states). The maximum limit for a conforming loan is usually set by the federal government depending on your geographical location.
Non-conforming mortgage loans
If you are financing a home above $484,350 (usually in most states), you’ll need a jumbo loan as it exceeds the loan limit. These loans do not meet the funding criteria by banks as guided by Fannie Mae and Freddie Mac.
Government insured FHA loans
A Federal Housing Administration (FHA) loan is most often issued to first-time or low-income home buyers. Borrowers can have a down payment as low as 3% with this type of loan. However, the FHA does not finance these loans directly. Instead, it guarantees the loans through its verified lenders. Borrowers are also required to pay a mortgage insurance premium (MIP), which protects lenders from defaulters.
Government insured VA loans
The US Department of Veterans Affairs guarantees these loans to eligible military service members and veterans, including their spouses. Borrowers do not need a down payment, PMI, or MIP to qualify. While borrowers need to pay a funding fee, the following members are excluded from the fee depending on the lender:
- Veterans with a service-related disability
- Veterans entitled to service elated compensation
- Spouses of deceased veterans
- Service members with a Purple Heart medal
Government insured USDA loans
These loans are guaranteed to homebuyers in rural areas by the United States Department of Agriculture. The property must meet the eligibility guidelines set up by USDA. There are two types of USDA loans you can apply for: Guaranteed USDA loan and Direct USDA loan.
What are the costs of a mortgage?
Most lenders recommend that your monthly mortgage payment should be below 30% of your gross income. Also, you need to ensure your total DTI is less than 36%. Lenders consider many factors when determining your mortgage costs, including:
- Down payment: You need to pay a certain percentage for the house you are buying. If your down payment is 20% on a $1M house, you will have to pay 20% in equity while the 80% will be financed through a mortgage.
- Closing costs: These costs include a lender origination fee, courier fees, escrow deposit & withdrawal fees, applications fees, inspection fees, title insurance, attorney fees, homeowners association fees, and application fees. The average closing costs range between 2% to 5%.
- Mortgage points: They can also be referred to as discount points. Borrowers who want to lower their interest rate can pay this fee to the lender. Every 1 point is 1% of the loan amount that you’ll need to pay. Each point reduces your interest by 0.25%. If you have an adjustable-rate mortgage, the points apply only to the initial rate. For fixed-rate mortgages, the points apply to the entire loan term.
- Prepayment penalties: Some lenders charge a prepayment penalty when borrowers pay off their mortgage earlier than the term limit.
- Mortgage insurance: You’ll need a private insurance mortgage if your down payment is below 20%. Borrowers with conventional loans can avoid purchasing a PMI by paying a minimum down payment of 20%.
- Monthly mortgage payment: You need to make your monthly payments to offset your loan. The monthly payments include:
- Principal: Refers to the total loan amount you borrowed. The principal reduces monthly.
- Interest: Interest rates can be fixed or adjustable depending on your loan terms.
Interest rates are determined based on the borrower’s risk. Lenders consider your crest history, loan term, home value, down payment, interest type, and property type to determine your rate.
How to choose the best mortgage lender?
Some lenders provide mortgage financial experts that will advise you on the best loan type and amount based on your credit score and needs. Consider the following to get the best mortgage:
- Loan type: Government-backed loans have lower interest rates, lower down payment requirements, and credit score compared to conventional loans.
- Loan term: Your loan term determines your monthly payments. If you want to pay a lower monthly amount, you’ll need to select a longer termloan. However, interest rates on longer term mortgages are higher compared to shorter term mortgages, so you’ll pay less monthly but more interest over the life of the loan.
- Interest rates: If you feel confident that interest rates will remain low for a while, an ARM will be a better option than a fixed-rate loan.
- Closing costs: Even though a lender offers the lowest interest rates, you’ll have to take into consideration of other costs, such as closing costs, if it’s worth going with that lender. That’s why it’s important to get quotes from multiple lenders.