April 2 News Update: Mortgage rates dropped for the second week in a row, thanks to moves made by the Federal government to help stabilize the markets. “We do anticipate that the combination of the stimulus and the Federal Reserve purchasing mortgage-backed securities over time will slowly bring mortgage rates back down,” said Adam DeSanctis, Director of Public Affairs of the Mortgage Bankers Association. Decreasing interest rates will allow home buyers an opportunity to lock in low rates and save on mortgage payments over the long run.
As of April 2, interest rates for primary mortgages averaged 3.33%, down from 3.5% the previous week, and down from 4.08% during the same week last year. Interest rates had experienced a slight rise during recent weeks thanks to the increased demand from home buyers looking to purchase homes and homeowners seeking to refinance existing mortgages at historically low rates achieved during the first week of March, when rates were as low as 3.29%.
One of the most important decisions you’ll make as a home buyer is choosing the right mortgage. According to the National Association of Realtors, roughly a third of home buyers are first-timers. That means they don’t just need to find a good lender, but also learn a couple of things about the mortgage industry itself in order to get started. While it’s now possible to shop and compare terms over the Internet, finding the right lender for you can still be intimidating, especially the first time around.
Right now is also a great time to buy a house as mortgage rates are at historic lows and the coronavirus continues to push rates even lower. That also means anyone who bought a home in the last few years should be looking into the mortgage refi options.
To help with the process, we’ve done the research for you, and highlighted some of the best mortgage lenders in the industry. The companies on our list stand out for different reasons. Some have strong customer service, like Quicken Loans, and others a smooth digital experience. We’ve also highlighted lenders that offer a full range of mortgage options.
Keep in mind, however, this article is designed as a starting point for mortgage shoppers. You still need to shop around, since the interest rates mortgage lenders offer are based on factors like your credit score and down payment. With that in mind, our aim with this guide is to make you an informed, empowered buyer.
Things to Consider Before Getting a Mortgage
Mortgage Types
There are three main types of mortgages:
- Conventional – these are plain vanilla mortgages, and are known as “conforming” because they comply with the loan limits and guidelines established by the Federal Housing Finance Agency (FHFA).
- Jumbo – or “non-conforming” mortgages, exceed the limits established by the FHFA, and are best suited for those looking to purchase a luxury property. Loan limits vary per state, but can be up to $1,000,000 or more.
- Government-backed – these are mortgages backed and subsidized by different federal programs, such as the United States Department of Agriculture (USDA), Federal Housing Administration (FHA) and Department of Veterans Affairs (VA). The main advantage these loans have over conventional ones is that they tend to have lower credit score requirements. You can also get the loan with a smaller down payment — or no down payment at all — if you qualify.
Understanding which type of mortgage is the most suitable for you will help you narrow down the list of lenders and ease the decision-making process.
Rates and Terms
Mortgages can have fixed or variable interest rates. With a fixed interest rate, your mortgage payments will remain the same over the life of the loan, whereas with a variable rate, your monthly payments will fluctuate according to market conditions.
Fixed-rate mortgages usually have terms ranging between 10 and 30 years. The “term” of a mortgage is the length of time you have to repay it.
Variable rate mortgages, commonly known as “adjustable-rate mortgages” or “ARMs,” start off with a fixed interest rate for a number of years. The interest rate then resets on a yearly or monthly basis, depending on the type of contract you have.
Adjustable-rate mortgages tend to start with lower interest rates than fixed-rate mortgages, which is why they’re an attractive option for those looking to pay off their mortgage faster. However, once interest rates start to reset, these can go up and down based on current indexes, causing you to pay more in the long-run.
Your Credit Score
According to Experian, as of 2019, you’ll need a credit score of at least 620 in order to qualify for a conventional mortgage, though this number may vary from one lender to the next. If you have a credit score of 750 or above, you’ll have better chances of getting approved with some of the lowest rates in the market, which translates to thousands in savings over the life of the loan.
Debt-to-Income Ratio
The debt-to-income ratio (DTI) represents how much of your income is compromised and is calculated by dividing all your monthly debt obligations by your monthly income. As of 2019, most lenders require a DTI of 43% for a conventional mortgage. If your DTI is higher than that, you represent a greater liability to the lender, as you have higher chances of defaulting on your loan.
How Much Money You Actually Need
The more you borrow, the more money the lender will make on interest and other fees. Rather than trusting them to tell you how much house you can afford, make sure to do your own calculation. While lenders tend to base their judgements on credit score and gross income, you should focus on net income, which gives you a better sense of your actual take home pay. Also, don’t forget to factor in expenses like taxes and home maintenance.
Closing Costs and Fees
Each company is different, so compare fees in addition to comparing interest rates and terms when choosing a lender, as these may amount to up to 5% of the original loan amount. Common fees include private mortgage insurance, attorney, credit report, document preparation, loan origination, and title search fees. Additionally, you need to be wary of so-called “junk fees” that a company might add to your closing costs, like “commitment fees.”
Before borrowing money from any lender, ask them to list out all of their fees and penalties, so you know what to expect. If they aren’t upfront, or don’t explain them thoroughly, walk away and continue shopping until you find a company that’s transparent about its closing costs.
Required Documentation
Mortgage applications require plenty of documentation. Here’s a list of some of the things you should gather to get the ball rolling:
- Copies of your two most recent tax returns, W-2s or 1099 forms
- Pay stubs
- A valid photo ID (passport, drivers license, etc.)
- Your social security card
- Bank statements
- Statements of any assets (IRAs and other investment accounts)
- Proof of bankruptcy discharge (if applicable)
Types of Lenders
Mortgages can be obtained through traditional banks, mortgage brokers, credit unions, and online lenders. While banks and credit unions offer similar services and one-on-one attention, credit unions tend to have lower interest rates and more flexible requirements.
Mortgage brokers can help you negotiate a better rate, but you’ll be limited to the lenders in their portfolio and additional broker fees may also apply. Online lenders allow you to get competitive rates without leaving your house, but oftentimes lack in-person assistance, which can be a bit daunting, particularly for first-time buyers.
Tips for Getting the Best Mortgage Rates
Visit your local credit union. When taking out a mortgage, most people usually go for the big banks or online lenders and forget about credit unions. While it is true that you must be a member of the credit union to access their products, some of them have less stringent requirements than others. For example, PenFed allows you to become a member just by joining an association like the American Red Cross. Since credit unions are member-owned they tend to offer lower mortgage rates and, sometimes, more flexible terms than other lenders, helping you save money in the long-run.
Check your credit report. The interest rate and the amount you’ll be able to borrow will be based on your credit score. Before applying for a mortgage, get a copy of your credit report to ensure there are no mistakes and that your information is up to date. Getting your credit report will also help you determine if this is the right time to apply, or if you should improve your credit to qualify for a better loan. You can get an annual free credit report from the main three reporting agencies by visiting AnnualCreditReport.com.
Talk to a real estate professional and get an appraisal. “Appraisals are oftentimes subjective,” says Eddie Wilson, CEO of the American Association of Private Lenders. He recommends you get your own before applying for the mortgage instead of going with the bank. Real estate agents are often qualified to conduct appraisals, but you’ll have to find a separate agent than the one you are working with, as this would be a conflict of interest.
Getting an independent appraisal can help you better understand the value of the property you wish to purchase and serve as a comparison tool to ensure you make the loan for the right amount.
See if you qualify for a government-backed mortgage. Programs like FHA, USDA, and VA loans generally offer lower down payments and interest rates. This is because these mortgages are insured by the federal government, thereby protecting the lending institution in the event you default. They also typically have less stringent qualification requirements, making them ideal for those with lower credit scores.
“Go get quotes on both,” says Kurt A. Schindler, a certified financial planner with 30 years experience in budgeting and cash flow management, when asked whether it’s better to go with a conventional mortgage or a government-backed one. “You never know, something may have changed that day, and you may be able to qualify with a better rate,” he adds.
Compare estimates from different lenders. The Consumer Financial Protection Bureau (CFPB) advises asking for a loan estimate from different lenders using the same specifications, like loan and down payment amount, term and type of interest rate, to see which lender is really offering you the best deal.
Consider paying mortgage points. Also known as “discount points,” these are fees that you pay upfront which could potentially save you thousands of dollars over the life of the loan by reducing your interest rate and monthly payments. Each point is the equivalent of 1% of the loan amount, or $1,000 for every $100,000.
The Best Mortgage Lenders
Here’s our list of the best mortgage lenders of 2020 and the reason why they made the list:
- Best Customer Service – Quicken Loans
- Best for FHA and Other Government-Backed Loans – Freedom Mortgage
- Best for First-Time Buyers – Chase
- Best for Low Down Payments – Bank of America
- Best Traditional Bank – Wells Fargo
- Best Comparison Tools – LendingTree
- Best For Veterans — Veterans United
Mortgage Lender Reviews
Below are the top picks for the best mortgage lenders. Find out why they’re the best in their respective category, and which one may be the best for you and your financial situation.
Quicken Loans Review: Best Customer Service
The largest mortgage lender in America isn’t a traditional bank, it’s Quicken Loans — which surpassed traditional banking giants JPMorgan Chase and Wells Fargo in 2018. That’s because its large investment in developing online mortgage application software allowed it to shine at a time when competitors were retrenching after the financial crisis.
A few years ago, Quicken was so proud of its new Rocket Mortgage software, it took out a Super Bowl ad promising customers a mortgage in as little as eight minutes. The main reason why it’s so fast: While other lenders may ask you to gather all of the information and submit it in-person or by mail, Rocket Mortgage can pull these automatically once you enter data like your social security number and bank account credentials.
If you are the kind of person, however, that needs the personal touch of one-on-one interaction when making large financial decisions, Rocket Mortgage’s online interface may not be an attractive option, regardless of how fast it is.
Quicken has won plaudits in consumer surveys too. In 2018, J.D. Power and Associates ranked Quicken Loans #1 in Customer Satisfaction for Primary Mortgage Origination for the 9th year in a row.
Freedom Mortgage Review: Best for FHA and VA Loans
Freedom Mortgage is known for its government-backed mortgages, such as FHA, VA and USDA loans. These programs can make it easier for borrowers with unconventional situations to get a mortgage, especially first-time home buyers. For instance, while you need a credit score of at least 620 for a traditional “conforming” mortgage backed by Fannie Mae or Freddie Mac, you can get an FHA loan with a score as low as 580. FHA loans, also allow borrowers to put as little as 3.5% down, compared to the much heftier 20% customary mortgage down payment.
Keep in mind, though, that there are drawbacks. FHA loans require borrowers to pay “private mortgage insurance,” an extra fee that typically amounts to 0.2 to 2% of your mortgage.
Freedom, one of the top FHA lenders by volume, aims to help borrowers sift through the government paperwork in order to qualify for these types of loans. It’s simple and transparent underwriting process is fully online. So, if you are looking for a company that has strong knowledge of how to secure one of these loan products, Freedom Mortgage could be a good option for you.
Chase Review: Best for First-Time Buyers
JPMorgan Chase offers both conventional mortgages and government-backed ones, such as FHA and VA, with fixed and variable interest rates. This allows them to accommodate different borrower profiles. However, where Chase really stands out from other companies, is in the tools and resources it has available for consumers.
When you visit the company’s website, you have access to multiple calculators that allow you to estimate what your monthly payment will be, how much your house is worth, and how much house you can afford. This enables customers to enter the mortgage application process with an idea of how it will impact them financially.
Chase also has a complete section dedicated to answering questions for first-time buyers and a guide explaining common mortgage terminology which compares different products side-by-side. Loan officers are available to walk you through the lending process at the bank’s local branches, or over the phone.
Applications can be filled out online or at a physical branch, and Chase is offering a $1,000 on-time closing guarantee for its clients, in addition to an interest rate discount through the Chase Private Client Mortgage Rate Program.
Bank of America Review: Best for Low Down Payments
Just like most brick-and-mortar banks, Bank of America offers a wide range of mortgage options, from conventional to jumbo to government-backed loans, all of which are available with fixed or adjustable interest rates. What differentiates Bank of America from other lenders is that beyond its traditional FHA and VA loans, the bank offers two additional low down payment options: the Affordable Loan Solution mortgage and the Freddie Mac Home Possible mortgage.
Both of these loans only require a 3% down payment for those who qualify. The main difference is that with the Affordable Loan Solution mortgage you’re not required to take out insurance, whereas with the Freddie Mac Possible loan you are, but at a greatly reduced rate compared to conventional mortgages.
With Bank of America, you can apply for a mortgage online through its Digital Mortgage Experience, or at one of its physical branches. Additionally, you can check your eligibility for any of these products by visiting the bank’s website.
Wells Fargo Review: Best Traditional Bank
Wells Fargo is one of the “Big Four Banks” in the United States and is also one of the world’s largest banks by market capitalization. Despite some issues in the past with the Federal Trade Commission (FTC), and multiple complaints filed against it with the Nationwide Mortgage Licensing System (NMLS), which appear to be mostly settled, Wells Fargo continues to be one of the nation’s top mortgage originators.
The company offers conventional, jumbo, FHA and VA loan, plus mortgages for newly built homes, and a mortgage program called “yourFirst Mortgage,” designed specifically for first-time home buyers. Similarly to other banks, its mortgage options are available with fixed and variable interest rates and terms up to 30 years. Loan applications can be filed online or at one of the 8,050 physical branches that the bank has across the nation.
LendingTree Review: Best Comparison Tools
LendingTree does not offer mortgages; instead it’s a comparison website that aims to make it easier to get quotes from multiple mortgage lenders by filling out a single form. As mentioned previously, it’s important to get several quotes before deciding which lender to work with.
LendingTree allows you to compare quotes from up to five lenders in just a few minutes by providing a few details, such as your contact information, type of property you wish to purchase, its location, loan amount, and approximate credit score. The service is free and allows you to start the mortgage application process from the comfort of your own home.
Veterans United Review: Best For Veterans
For the last two years, Veterans United has been the largest overall VA lender in the United States. VU is a full-service lender that specializes in VA loans while providing top customer support and guidance for veterans looking to become homeowners. With this level of commitment, it’s no wonder Veterans United has been chosen by so many active service members and veterans looking for a lender they can trust.
Veterans United’s website serves as a great resource for anyone looking to fully understand the VA loan program. For applicants trying to determine eligibility, Veterans United experts provide invaluable guidance. For those customers further along in the process, there are other resources available to help them secure a loan with low expenses and fees.
The website also has multiple loan calculators designed to assist applicants with their budgeting throughout the purchase process. With these tools at their disposal, customers can determine monthly payments and confirm the loan amount that falls within their range.
Not only has Veterans United garnered thousands of positive reviews on various websites, but there’s nearly 200,000 reviews on their own site that interested parties can research before signing on. The company has 23 branch locations in 18 states; most are located near military bases and other related installations. Veterans United also offers its Lighthouse Program, a free credit repair service that helps military personnel improve their credit score, just another example of Veterans United commitment to military families and their wellbeing.
How We Found the Best Mortgage Lenders of 2020
To find the best mortgage lenders of 2020, we needed to understand the mortgage industry as a whole, as well as the ins and outs of taking out this type of loan. To this end, we conducted extensive research and talked to multiple industry experts to come up with a list of guidelines to help us evaluate each of these companies.
Once we were able to gather all of the information from each of the lenders, we selected those that stood out the most in the following categories:
Reputation and Customer Service
Buying a home is a lengthy and exhausting process. That’s why it’s so important for your lender to offer excellent customer service and answer any questions you may have. We looked at several JD Power and Associates rankings from the past several years, in addition to any regulatory actions filed with the Nationwide Multistate Licensing System (NMLS), selecting those with the best track record.
Variety of Mortgage Products
Every single company on this list offers many different options, including conventional mortgages, as well as FHA or VA loans. Some of them also offer jumbo loans and other specific types of loans that might not be available everywhere.
Accessibility to Borrowers
Another factor we considered was loan accessibility, so we made sure this list included lenders that cater to borrowers on different stages and from different walks of life. The companies on this list serve both first-time borrowers and experienced homeowners alike. Additionally, some companies, like Freedom Mortgage, are particularly good for non-traditional borrowers.
Seamless Digital Experience
Given that this list is for the best mortgage lenders of 2020, we included companies competing in the current digital market. Some are more traditional than others, but still offer a variety of tools and resources to help you complete your loan application from the comfort of your home.
Summary: Best Mortgage Lenders of 2020
In the end, the best mortgage lender is the one that can offer you the best terms and interest rates, plus the lowest fees.
Still, our list of top picks can serve as a starting point to simplify your journey and point you in the right direction, when looking for the right financing option to purchase the home of your dreams.
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