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- Consider both direct lender vs. broker and the specific mortgage products a company offers.
- By applying for preapproval with several lenders, you can compare interest rates and loan amounts.
- Loan estimates help you see rates, closing costs, and monthly payments from different companies.
It's not necessarily just about where you can find the lowest rate. The best mortgage lender for you is one that offers you the best overall deal.
In addition to your mortgage rate, the lender you pick also determines the amount you can borrow, the fees you'll pay, and how smooth of an experience you have. Here are tips for choosing a lender that fits your needs.
Prep your finances
First things first: before you start looking for a mortgage lender, you'll want to make sure you're in a good place to get approved for a mortgage.
Generally, you'll need at least a 620 credit score to get a mortgage, though a higher score will improve your approval odds and help you get a better rate. If you have a lower score, you might have luck with an FHA loan or a lender that offers mortgages to low-score borrowers.
If your score isn't in a great spot, there are things you can do to improve your credit score, like paying down your credit card balance.
Choose a type of mortgage lender
You can either work directly with a mortgage lender or find a lender through a mortgage broker.
- Direct lenders. You work one-on-one with a direct lender, and that is the company that provides your financing. A direct lender could be a bank, credit union, or lending company such as Better Mortgage or Carrington.
- Mortgage brokers. A mortgage broker is the middleman between you and a lender. A broker helps you compare lenders and find the best deal, but you might have to pay them.
There are benefits to each type. You might even want to consider talking to both a broker and a few different lenders to compare the kinds of rates available to you from each.
Find a lender that offers the type of mortgage you need
Not every lender provides each type of mortgage.
Most lenders have conforming and jumbo mortgages. Conforming mortgages are what you might think of as "regular" mortgages, and jumbo mortgages are home loans for larger amounts. But if you need a specific type of loan, you can consult Insider's lists of the best lenders for each kind:
- FHA mortgage lenders. Lenders with mortgages backed by the Federal Housing Administration cater to borrowers with lower credit scores and smaller down payments than those that focus on conforming mortgages.
- VA mortgage lenders. Lenders with mortgages backed by the Department of Veterans Affairs work with active military members and veterans to get loans with zero money down.
- USDA mortgage lenders. Mortgages guaranteed by the US Department of Agriculture are for low-to-moderate-income borrowers buying homes in rural areas, and most lenders don't require a down payment.
How to compare mortgage lenders at each stage of the process
Mortgage prequalification
Mortgage prequalification is one of the first steps in the homebuying process. When you apply for prequalification, you give a lender your financial information, such as your credit score and income. Then the lender gives you an estimate of how much it may lend to you, which types of mortgages you're eligible for, and what interest rate you could pay.
The information you see when you're prequalified isn't set in stone, but applying with multiple lenders can help you compare basic details to narrow your search. For example, you may see that you qualify for a conforming mortgage with one lender but not the other, because one requires a higher credit score.
Mortgage preapproval
Mortgage preapproval is similar to prequalification, but there are key differences. You apply for preapproval when you're ready to start shopping for homes. With a preapproval, a lender will verify the financial information you provide and give you a more concrete estimate of what you can afford and how much your loan will cost. By applying for preapproval with several lenders, you can compare mortgage rates to help you narrow down your options.
Try to limit your applications to a period of 30 to 45 days. A lender does a hard credit inquiry when processing your preapproval application. A bunch of hard inquiries on your report can hurt your credit score, unless it's for the sake of shopping for the best rate. If you limit your rate-shopping to a month or so, credit bureaus will understand that you're looking for a home and shouldn't hold each individual inquiry against you.
Mortgage loan estimate
Once you choose a home, you will apply for a mortgage and receive a loan estimate from a lender. The estimate lays out all of the costs of buying a home, including the the amount you can borrow, the interest rate, an itemized list of closing costs, and any additional fees like prepayment penalties. This estimate allows you to easily compare your offer to other lenders' offers.
Between the qualification, preapproval, and loan estimate, the loan estimate is the most detailed and official of the three. Receiving this document from more than one lender will help you compare tiny details.
Read every document carefully
Read your preapproval letters and loan estimates closely to ensure you understand what you would pay with each lender. If you don't understand a term or fee, don't be afraid to ask the company.
Once you've chosen a lender, you'll receive a closing disclosure at least three days before closing. A closing disclosure provides a detailed summary of your mortgage, and you should read the fine print to make sure there are no mistakes, compare it with your loan estimate, and ask any questions.
You may even decide to hire a lawyer to read your closing disclosure, but be prepared to pay several hundred dollars.