How to choose a mortgage lender
Quick insights
- To choose a mortgage lender, compare interest rates, loan products and customer reviews.
- Getting mortgage preapproval with at least two lenders can help you compare official Loan Estimates side by side.
- Look beyond the advertised interest rate. Evaluate all the financials and the lender’s responsiveness before deciding.
You’re in the market to purchase a new place you can call home—how exciting! Choosing a mortgage lender is one of the most important steps in homebuying. This decision influences your interest rate, loan terms, closing costs and complete experience. You could start with referrals and online searches or read on to learn how to choose a mortgage lender that suits you.
How to find a mortgage lender
Finding the right mortgage lender takes more than a quick referral. Recommendations from your family, friends and real estate agent give you a good start. However, a structured approach helps you find a lender that makes a good partner for you.
1. Assess your financial situation
Think beyond just the home price. Determining what you can afford depends on several aspects of your finances:
- Credit score: Check your credit score and credit report. These influence the mortgage interest rate and loan programs you may qualify for. Addressing potential errors and improving your score before applying for a mortgage may help reduce your borrowing costs.
- Employment: Stable income and consistent employment help demonstrate financial reliability to mortgage lenders.
- Down payment: How much you can comfortably put down upfront. Review down payment assistance programs, as well. Some are meant for first-time homebuyers.
- Closing costs: These include home appraisal fees, title insurance, loan origination fees, earnest money deposits and other one-time expenses. Closing costs are due before you officially settle.
- Monthly mortgage payment: Principal, interest, property taxes, homeowner’s insurance and HOA fees (if applicable). This accounts for a significant portion of the ongoing costs of homeownership. For questions about how taxes may apply to your situation, consider speaking with a tax advisor.
- Debt-to-income ratio (DTI): Mortgage lenders review your DTI ratio to see how much of your gross income goes toward existing debt obligations. A lower DTI may help you qualify for better loan terms and maintain a healthy budget.
- Home inspection: A professional home inspection usually identifies potential problems before closing and may increase your upfront costs.
- Moving expenses: You may incur these, depending on where you’re going to live. Whether you hire professional movers or rent a truck, moving fees could range from hundreds to thousands of dollars.
Finally, gather key financial documentation, such as recent pay stubs, W-2s or tax returns, and bank statements. Being organized upfront can help streamline mortgage preapproval and underwriting. For questions about how taxes may apply to your situation, consider speaking with a tax advisor.
2. Evaluate mortgage types
Common options are fixed-rate and adjustable-rate mortgages:
- A fixed rate mortgage is where the interest rate remains the same for the life of the loan.
- Adjustable-rate mortgages (ARMs) typically begin with an introductory interest rate that can adjust after a set period, such as a 5/1 ARM (fixed rate for the first five years; then the interest rate adjusts annually based on market conditions).
You will also compare loan terms, such as 15-year, 20-year or 30-year options.
- Longer terms can mean lower monthly payments, which can be useful for any budget over time.
- Shorter terms generally mean higher monthly payments but less interest paid over time.
In addition, explore specific loan programs, if applicable:
- FHA loans are government-backed mortgages that may allow lower down payments and flexible credit requirements.
- VA loans are available to eligible servicemembers, veterans and certain surviving spouses who meet VA loan requirements. VA loans may offer benefits, such as no down payment and no private mortgage insurance (PMI).
3. Research and compare mortgage lenders
Look at various options, including banks, credit unions, mortgage brokers and online lenders. The sample (or advertised) interest rates and fee structures are very important. However, advertised rates are just examples; your final rate depends on your credit and the current market. Getting quotes from multiple lenders highlights their differences in pricing and customer service.
4. Check credentials and customer reviews
Before choosing, verify that the lender is licensed in your state. You can confirm this through your state’s regulatory agency or the Nationwide Multistate Licensing System (NMLS)Opens overlay. Beyond that, read customer reviews to learn about a lender’s communication style and honesty about costs or timelines. Looking for consistent patterns in reviews can help you make a more informed decision.
5. Get preapproved for the loan
Once you have a few favorites, you can submit a formal mortgage application (or more than one if you’re still comparing). During mortgage preapproval, the lender will review your credit history, income, assets and existing debts. If you qualify, you’ll receive a preapproval letter. This shows sellers you’re a serious buyer with financing to back up your offer.
6. Review and compare Loan Estimates
If you’re preapproved, you get a Loan Estimate outlining key terms and projected costs. Here are some key figures to compare:
- Interest rate
- Annual percentage rate (APR)
- Estimated monthly payment
- Closing costs
- Cash to close
Make sure you understand whether your interest rate is locked, if mortgage discount points are included and how lender fees differ. If something is unclear, ask the lender for clarification. In some cases, you may be able to negotiate fees or request a rate match.
What makes a good mortgage lender?
Buying a home is one of the biggest purchases someone can make. A mortgage lender can guide you through this important, complex process.
A good company provides simple ways to help you manage your mortgage, such as high-quality websites, mobile apps and helpful phone support.
While a low rate is important, a knowledgeable and responsive lender is, too. Local mortgage lenders can be especially helpful because they understand your specific housing market.
Things to watch out for when selecting a mortgage lender
If a lender fails to deliver on something you want during the homebuying process, this could be a red flag. From their communication style to important steps like scheduling the appraisal, lenders should have your interests in mind.
Most top lenders prioritize your relationship as much as the logistics of providing a mortgage loan. That extends from preapproval until you get the keys to your new house. Bonus points if the mortgage lender keeps in touch with you post-closing.
Questions to ask a mortgage lender
Use these questions as a guide for what to ask mortgage lenders:
- What types of loans do you offer, and what is the best option for my goals?
- How long is the preapproval process?
- What is the total APR?
- What documents do I need for approval?
- What closing costs will I have to pay?
- Can I close my loan online?
- What is your average time to close?
- How is the monthly payment broken down between principal, interest, taxes and insurance?
In summary
You can find mortgage lenders online or in person. Great lenders understand the value of a satisfied client and will communicate clearly based on your preferences. Choosing the right partner in a mortgage lender can ensure your homebuying experience is positive and memorable.
