Which Mortgage Lender Should I Use in 2009?

© 2009, Brandon Cornett. All rights reserved.

Reader Question: Every time I turn on the news, I hear about mortgage companies that have gone bankrupt or been bought out. It makes me nervous, because I plan to buy a home soon. Which mortgage lender should I use these days? Any advice or recommendations?

I’m not comfortable steering you toward a particular lender, because I don’t know enough about your financial situation. But I’d be happy to offer some tips. Hopefully, these will help you decide which lender to use for your mortgage loan.

• If you already have an established relationship with a bank (such as a car loan or savings account), start with them. Ask if they offer mortgages. In many cases, you can get “current customer” discounts on closing costs and other fees by choosing a lender in this way.
• If the above tip doesn’t work out, you can also use the Internet to find lenders and gather mortgage quotes. This is an easy way to get the ball rolling, and you’ll quickly learn what kind of terms and rates you qualify for. Use the “quotes” link provided at the top of this blog to get started.
• When deciding which lender to use, remember that each company has its own lending criteria. You could get approved by one and rejected by another. You could qualify for an interest rate of 6% with one lender but 5.25% with another. So shop around for the best rate.

I’d like to change gears for a moment and talk about a topic that’s even more important to you, as a future home buyer. Let’s talk about the type of loan you choose.

The Mortgage is More Important Than the Lender

Which lender to choose is an important consideration. But it’s not as important as the size and type of loan you get. Choose a home mortgage loan that matches your long-term plans, and be sure to stay within your budget. Taking on too large of a monthly payment is a recipe for disaster. Just ask the millions of foreclosure victims in the U.S.

Here’s a prime example of choosing the wrong type of mortgage. A lot of home buyers in the early 2000s went with the adjustable-rate mortgage (ARM) loan, because it made the loan more affordable for the first three to five years. But when the interest rates adjusted upward after the introductory period, millions of these same homeowners were unable to make their payments. The rest, of course, is history — and an ugly one at that. We had a foreclosure crisis, a mortgage crisis, and a full-scale economic recession. This wasn’t the only factor that caused our economic woes, but it played a big part.

So when choosing which mortgage lender to use, don’t forget the importance of the loan itself. Be sure you understand what kind of interest rate you are getting. I usually recommend a fixed-rate mortgage, because it’s predictable over the long term (the rate won’t change). I also encourage you to set your own home-buying budget, long before you start talking to lenders.