Real Estate News
How to Choose the Right Lender for Your Needs
Whether you're in the market for a home loan, a business loan, or some other type of loan, it's important to choose the right lender. With dozens, or even hundreds of options available to you, your final decision can impact how much you'll pay over the course of the loan, the type of loans you qualify for, and even your subjective experience as you apply and make payments.
So, what's the best way to decide the best lender for your needs?
Understand Your Personal Situation
Before you start looking for a lender, you should work to understand your personal situation. What are your needs and how could a lender serve those needs?
- Type of loan desired. Do you know what type of loan you need? Are you in need of a mortgage because you're looking for a home for sale with a pool in Arizona? Or are you still early enough in the process that you're flexible on this?
- Credit score. What is your current credit score? Does your business have a credit score (if applicable)? Do you have time to improve this credit score if it means getting access to a better loan?
- Income and debts. How much money are you currently making and how much debt do you currently hold? These variables can have a major impact on how much money you're able to borrow. If you have time before you need the loan, you may be in a position to increase your income or pay off your debts.
- Short-term and long-term goals. What are you hoping to accomplish in the near and long-term future? Is it more important to have a low interest rate or a low monthly payment? How much debt are you willing to take on? How soon do you need to act?
Comparison Shop
Next, you'll be ready to start looking for different lenders. You can conduct your own online searches, gather recommendations from friends and family members, or even use an online comparison service to find new information.
Be sure to study the following variables, at minimum:
- Loan type. There are many different types of loans available, and not all lenders offer all types of loans. Some lenders specialize in offering a certain type of loan, such as a home mortgage, while others have a variety of loan products to offer. Research the options available to you with each company - and don't exclude any options too early in the process.
- Interest rate and type. Most loans accumulate interest over time, compounding on a regular basis with an annual interest rate. You'll want to pay close attention to these variables, since they'll influence not only your monthly loan payments but also how much you're going to pay over the course of the loan. For example, with a 30-year home loan, even tiny fractional changes in your interest rate can make a difference of thousands of dollars over the lifespan of the loan. Generally speaking, fixed interest rates are favorable over variable rates.
- Term length. How long is the duration of the loan? In other words, how much time will you spend paying this loan back? You might be able to find a lender with an attractive interest rate and an affordable monthly payment, but if it takes you 30 years or longer to pay the loan back, is it worth it?
- Closing costs and fees. Are there closing costs or other fees associated with this loan? What will you have to pay for the privilege of borrowing this money, in addition to interest?
- Additional fees and penalties. Are there any other additional fees or penalties to be concerned with? For example, if you pay off the loan early, will you have to pay a fee? If you miss a payment, will you face a penalty?
Making the Final Call
Once you've narrowed your list of options down to a mere few, you can work to finalize your decision.
- Reviews and testimonials. Look up reviews and testimonials from customers who have used this lender in the past. Are people generally satisfied with their experience? Or does this lender have shady practices?
- Personal experience. Do you have personal experience with this lender? If you reach out to the lender with questions, do you get an immediate (or near immediate) response? Does it seem like they offer good customer service?
- Negotiation. In some cases, you may be in a position to negotiate the loan. You may be able to push for a lower interest rate, or work to waive some of the fees associated with the loan.
If you follow this procedure, you'll be in a much better position to find the right lender for your needs. With a better lender, and a better loan, you'll end up paying less over the term of the loan - and have a better personal experience in the process.
