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Best Mortgage Lenders of January 2021
Ready to start adulting? Buying a home is a major milestone on your journey. But first, you need to know which of the top-rated mortgage lenders is best for you. You’re in good company — a third of the loans that the best home loan lenders make are to first-time homebuyers. You’re sure to find that the best mortgage companies have first-time homebuyer programs to make the process easier and more accessible.
And even if this isn’t your first time at the rodeo, it’s good to keep yourself updated about the top mortgage lenders and what they’re doing differently since the last time you purchased a home. The Simple Dollar compared what the top-rated mortgage companies have to offer and examined how they measure up in categories such as customer service, loan process, and buyer assistance, to review the best mortgage lenders for 2020.
Current mortgage rates
According to Bankrate’s latest survey of the nation’s largest mortgage lenders, these are the current refinance average rates for a 30-year, 15-year fixed and 5/1 adjustable-rate mortgage (ARM) refinance rates among others.
|30-Year Fixed Rate||2.910%||3.210%|
|30-Year FHA Rate||2.660%||3.550%|
|30-Year VA Rate||3.110%||3.410%|
|30-Year Jumbo Rate||2.960%||3.070%|
|20-Year Fixed Rate||2.780%||3.100%|
|15-Year Fixed Rate||2.380%||2.720%|
|15-Year Fixed Jumbo Rate||2.410%||2.480%|
|5/1 ARM Rate||2.890%||3.980%|
|7/1 ARM Rate||2.840%||3.890%|
|7/1 ARM Jumbo Rate||2.910%||3.860%|
|10/1 ARM Rate||3.100%||3.940%|
Rates data as of 1/14/2021
Why trust The Simple Dollar?
The SimpleScore makes it easy to compare current mortgage rate products and services featured here on The Simple Dollar in a transparent, open and honest way. We rate these products and services using five factors and average them to come up with a single SimpleScore For mortgages, we compare: perks, credit impact to check rates, customer satisfaction, product variety and fees.
While you shop for your next mortgage loan, use our ratings and comparisons to help you choose the best mortgage lender that fits your specific needs.
How the new fee of 0.5% affects refinancing cost
A new “adverse market” fee will likely impact your mortgage refinancing costs. Effective December 1st, 2020, lenders will be required to pay this fee to government-sponsored agencies Fannie Mae and Feddie Mac on each refinance mortgage they close. It’s expected that lenders will either put that fee on the consumer via higher interest rates — anywhere from 0.125% to 0.25% increase — or simply charge them for the fee directly.
The Mortgage Bankers Association estimates that the average borrower can expect it pay an additional $1,400 — either by higher interest or the fee itself. Any loan balance below $125,000 is exempt from this refinance fee. You can also skip out on the fee if you close your refinance before the December 1st effective date.
The 7 best mortgage lenders of 2021
- Best Customer Satisfaction: Rocket Mortgage
- Best Mobile Application: SunTrust/Truist
- Best for Homebuyer Grants: Chase
- Best for Existing Customers: Bank of America
- Best for Member Perks: SoFi
- Best for Fair Credit: New American Funding
- Best for Low Down Payments: Guaranteed Rate
The 7 best mortgage lenders at a glance
|Lender||30Y Fixed APR||15Y Fixed APR||5/1 ARM Rate||Min. Credit Score|
|Bank of America||3.066%||2.616%||2.890%||620|
|New American Funding||2.940%||2.610%||N/A||620|
*Rates accurate as of August, 2020
What is a mortgage?
A mortgage is a type of loan used to pay for real estate. Mortgages are one of the most common loans because most people don’t have a few hundred thousand dollars to pay cash for a house.
The process of qualifying and getting a mortgage used to take some time but online lenders today make it possible to answer a few questions through their online mortgage portals and get pre-approved for a mortgage in a matter of minutes. The interest rate will depend on a few factors, such as your credit score, employment history, and income.
[Read: Tips for Getting a Mortgage]
How do mortgages work?
When you feel it’s time to start house hunting, it’s a good idea to prequalify for a mortgage so you know how much house you can afford and what it’s going to cost you. Before you get started, it’s important to make sure your credit score is as high as possible, you have some money set aside for a down payment and you’ve paid down your debts. Here’s how mortgages work:
- You decide you’d like a mortgage and do some research about the type of loan you’d like
- You choose the length of the home loan and if you’d like a fixed or adjustable-rate mortgage
- You apply for the type of mortgage by providing details about your credit history and financials for the last couple of years
- A lending institution looks at your overall financial picture to decide if you’re a creditworthy borrower
- If the lender believes you’re a good candidate, it will provide you with a loan amount and interest rate
- If you agree, you’ll work with the lender to close on the loan for a house of your choice and make a downpayment to move in, which is typically 20% of the loan amount
- The lender will fund the home purchase and you’ll pay it back through monthly payments for the agreed-to length of time
[Read: How Much House Can I Afford?]
Current mortgage rates
The coronavirus pandemic has led to an economic slowdown that has pushed the federal government to create a stimulus package to protect the economy. The federal stimulus means that borrowing is cheaper than ever, pushing mortgage interest rates down to a new low. Now is one of the best times in history to borrow money for a home purchase — the low interest rates will result in lower monthly mortgage payments. In addition, the lower interest rates have the potential to save you tens of thousands of dollars in interest charges over the life of your mortgage.
Types of mortgages
- Conventional: A conventional loan is a mortgage from a private lender, as opposed to one you get from a government program. Conventional loans have a fixed interest rate so you know what your monthly payment will be for the life of the loan. Conventional loans are limited to $510,400 or $765,600 in high cost areas.
- Jumbo: If you need to borrow more than the conventional loan amount allows, you’ll need a jumbo loan. They may come with stricter requirements on your credit and financials.
- ARM: Short for adjustable rate mortgages, they’re a type of mortgage in which the interest rate can change over the life of the mortgage. The initial interest rate is typically fixed for a period of time, such as three, five, or seven years. Once the period of time is up, the interest rate resets on a monthly or annual basis.
- FHA/VA/USDA: These are government-backed mortgages for first-time, low-income, farmers, rural or military buyers.
How to choose the best mortgage lender for you
Choosing the best mortgage lender takes a lot of research and pre-planning. It’s important for you to know what type of mortgage you’d like and have an idea of how much you’re comfortable paying in monthly payments. Once you have a general idea, follow these steps to choose the best mortgage lender:
- Get your financials in order. Lenders will look at your credit score, the amount of debt you have, your income and your savings. Pay down your loans, stay up to date on your payments and review your credit score for any errors and report them.
- Read about a few different types of mortgage lenders to find ones that resonate with you.
- Do your research about the lenders you’re interested in by checking out reviews online.
- Reach out to the lenders you’re interested in with a list of questions about interest rates, application process, and what type of help the lender would provide through the application process.
- Apply to get prequalified to know how much you’re approved for and the cost of your loan.
- Evaluate what each lender offers you and choose the terms that best work for your situation.
What should you do before you apply for a mortgage?
In order to speed up the mortgage process, it’s a good idea to prepare all the necessary documents, research and credentials you’ll need to apply.
- Get pre-qualified. This will give you an idea of how large of a loan you can qualify for and better prepare you for home shopping. A pre-qualification is more appealing to home sellers, too, because it demonstrates you’re a serious buyer. With pre-qualification, there won’t be any surprises when it comes time to apply for the funds you need in order to buy your home. You’ll know you have an excellent chance of qualifying for the amount you need.
- Improve your debt-to-income ratio (DTI). If you have the time, improving your DTI ratio before you apply for a mortgage can increase the amount you’re approved to borrow. By either increasing your income or reducing your debt, you free up more money for a loan and become a more attractive borrower.
- Research your lender options. You may qualify for multiple types of mortgages, some of which could offer better rates than others. For example, FHA and VA home loans or special first-time homebuyer programs can offer you more attractive rates and terms, but you’ll need to do your homework to make sure you qualify.
- Prepare your documents. It can take some time to compile all of the necessary paperwork to apply for a mortgage. Get ahead of the process by organizing documents like your pay stubs for a month, bank statements, tax returns, loan and credit card statements, proof of assets, retirement funds, etc.
Which mortgage term is best?
The best mortgage term will vary based on each borrower’s goals and financial situation. There are a few things to consider, like your income and other debt, how long you play to stay in the home and the interest rates you’re offered. Your interest rates may vary depending on the term you choose, which could be a deciding factor for you.
The shorter the term (like 10 or 15 years), the larger your monthly payments will be, but the less interest you’ll pay over the lifetime of the loan. If you have a high income, you may choose a shorter loan if you can afford to pay the higher monthly fees.
With a longer-term loan, like the 30-year loan option, you’ll have a cheaper monthly payment, but you will pay more interest on the loan as a whole — likely double what you’d pay on a shorter term. This is more suited for people who have less income or want to free up more cash while maintaining a longer loan.
A mortgage is considered a very healthy form of debt and is great for your credit score, so don’t be afraid to choose a long term if it’s better suited for your financial situation.
Mortgage lender FAQs
We welcome your feedback on this article and would love to hear about your experience with the mortgages we recommend. Contact us at firstname.lastname@example.org with comments or questions.