How to Choose a Mortgage Lender: A Step-by-Step Guide

Choosing the right mortgage lender can make a big difference in the long-term cost of your home, and knowing the right questions to ask a mortgage lender is the first step.

For example, two lenders may offer similar interest rates, but one could have hidden fees or poor customer service, which could cost you thousands over the life of your loan. Understanding how to determine these differences can help ensure the health of your financial future.

Researching your options and getting pre-approved by multiple lenders can also help you make the best choice. We'll walk you through the steps to choosing a mortgage lender, covering what to look for, how to compare offers and what questions to ask before making your final decision.

Key Takeaways

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Choosing the right mortgage lender can save you money through better rates and fees and ensure a smoother homebuying process with responsive customer service.

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Ask your lender about what loan programs they offer and what the total closing costs will be to make an informed decision.

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Avoid applying to just one lender and don’t overlook the lender's reputation or hidden fees in the fine print.

Step 1. Assess Your Financial Situation

When choosing a mortgage lender, the first step is understanding your financial situation. Knowing what you can afford gives you a clearer idea of which lenders and loan terms fit your needs. Here are five ways to assess your finances and the implications of a loan before meeting with lenders:

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    Set a budget

    Factor in down payments, closing costs and monthly payments to understand what you can afford.

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    Review your savings

    Make sure you have enough for upfront costs and an emergency cushion.

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    Estimate your loan term

    Decide between a 15- or 30-year mortgage based on your long-term plans and financial goals.

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    Check your credit score

    A higher score can lead to better interest rates and loan terms.

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    Calculate your debt-to-income ratio (DTI)

    Lenders use this ratio to gauge how much you can borrow.

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Debt-to-Income Ratio Calculator

Provide your income and recurring payments to calculate your DTI.

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Step 2. Understand Different Types of Mortgage Lenders

There are several different types of mortgage lenders available. Each offers advantages and disadvantages, and knowing these differences will help you find the lender that matches your financial situation and goals. Here’s a quick comparison to help you decide:

Lender Type
Benefits
Drawbacks
Ideal Borrower Profiles

Banks: Traditional institutions offering various loan products

Stability, wide range of services

Slower process, less personal service

Borrowers looking for stability and in-person assistance

Credit Unions: Member-owned institutions with competitive rates.

Lower rates, personalized service

Limited availability, fewer loan options

Members or those looking for local, personalized experiences

Mortgage Brokers: Intermediaries connecting you with multiple lenders.

Access to many lenders, tailored solutions

Fees, not all lenders work with brokers

Borrowers needing help finding unique or flexible loan terms

Online Lenders: Digital platforms offering quick loan applications and approvals.

Fast, convenient, often lower rates

Limited personal interaction, entirely digital experience

Tech-savvy borrowers seeking speed and convenience

Step 3. Research and Compare Lender Options

Researching your options carefully, including checking a lender’s reputation and fee structures upfront, will help you feel confident in your choice. Here are the steps to identify reputable lenders:

  1. 1

    Read online reviews

    Look for borrower feedback on rates, customer service and overall satisfaction.

  2. 2

    Check lender credentials

    Ensure the lender is licensed and accredited by trusted agencies.

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    Compare interest rates

    Gather quotes from multiple lenders to see which offers the most competitive rates.

  4. 4

    Review loan terms

    Look beyond rates to compare loan types, repayment terms and other options.

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    Ask about fees

    Clarify all upfront and ongoing fees, like closing costs, to avoid unexpected charges later.

Step 4. Get Preapproved by Multiple Lenders

A mortgage pre-approval shows that lenders have tentatively approved you for a loan up to a certain amount. This involves submitting your income, assets and employment details for review. If approved, you'll receive a pre-approval letter valid for 30 to 60 days, which can strengthen your offer on a home.

Getting pre-approved by multiple lenders allows you to compare different interest rates and loan terms. While each pre-approval triggers a hard credit inquiry, the effect on your credit score is typically minor and temporary, especially if done within a short period. This gives you more flexibility in finding the best mortgage deal.

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HARD CREDIT INQUIRY VS. SOFT CREDIT CHECK: WHAT YOU NEED TO KNOW BEFORE APPLYING

When you apply for a loan or credit card, lenders often perform a hard credit inquiry to review your credit history. This type of inquiry can slightly lower your credit score — usually by around five points — but the impact is usually temporary. In addition, while getting pre-approved for a mortgage triggers a hard inquiry, multiple inquiries are treated as one for scoring purposes if done within a short period.

A soft credit inquiry, on the other hand, doesn’t affect your credit score. These happen when you check your own credit or when lenders run a background check without a formal loan application. For instance, many credit card companies perform soft inquiries when you prequalify for an offer, giving you a sense of your eligibility without impacting your score.

Step 5. Compare Mortgage Offers

When you compare mortgage offers, it’s important to look beyond just the interest rate. Each lender may structure their loan differently, and understanding the various components will help you choose the offer that best fits your financial situation. Here are key areas to consider when reviewing loan offers:

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    Interest rate structures

    Check whether the rate is fixed or adjustable, as this affects your monthly payments over time.

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    Annual Percentage Rate (APR)

    This includes the interest rate plus fees, giving a clearer picture of the total loan cost.

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    Loan terms

    Compare the length of the loans (e.g., 15-year vs. 30-year) and how it impacts both monthly payments and total interest paid.

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    Fees and penalties

    Look for origination fees, application fees and any potential penalties for things like prepayment.

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    Rate lock options

    Ask if the lender offers a rate lock to secure your interest rate while you finalize the loan.

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    Closing timelines

    Make sure the lender can meet your expected closing date, especially if the home seller has a tight timeline.

Step 6. Consider Customer Service and Lender Accessibility

Considering customer service and accessibility must be part of your process when you’re choosing a mortgage lender. Here are three areas to explore:

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    Responsiveness and accessibility

    A lender who is responsive and accesible can make the mortgage process much smoother. For example, if issues arise during underwriting, having a lender who promptly returns calls or emails can help prevent delays in closing.

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    Digital tools and resources

    Some lenders offer online portals or mobile apps, allowing you to track your loan status and submit documents easily. If you prefer face-to-face interactions, choosing a local lender with in-person office visits might be a better fit.

  3. 3

    Access to support

    Different lenders offer varying levels of accessibility. For instance, online lenders may have limited phone support and focus on digital communication, while traditional banks might provide more in-person services. Choosing a lender whose communication style matches your needs can make the mortgage process less stressful.

Questions to Ask a Mortgage Lender

Different lenders offer varying rates, fees and terms, so asking the right questions can reveal important differences. Here are five key questions to consider:

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    What loan programs do you offer?

    Lenders may offer a variety of loans like FHA, VA or conventional loans. The availability of certain programs can affect your down payment, qualification requirements and loan terms.

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    What are the total closing costs?

    Closing costs can include origination fees, title insurance and more. One lender might offer a lower interest rate but charge higher closing costs, increasing your upfront expenses.

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    Is there a prepayment penalty?

    Some lenders charge penalties if you pay off your mortgage early. A lender without this penalty offers more flexibility if you plan to pay off your loan faster.

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    How long will it take to close the loan?

    The time it takes to approve and close a loan varies. A quicker process might be ideal if you're in a competitive market, while slower timelines could delay your home purchase.

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    What is the minimum down payment required?

    Some lenders allow low down payments, while others require 20% or more. A lower down payment could free up cash, but it may also mean paying for mortgage insurance (PMI).

Mistakes to Avoid When Choosing a Mortgage Lender

Choosing the right mortgage lender requires more than just comparing rates and fees. Avoiding common mistakes can save you time, money and frustration during the process. Here are some pitfalls to watch out for:

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    Not checking the lender’s reputation

    Failing to research reviews or complaints could leave you dealing with poor service or hidden fees later in the process.

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    Only applying to one lender

    You may miss out on better rates or terms by not comparing offers from multiple lenders.

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    Ignoring lender-specific requirements

    Some lenders have strict criteria for income, credit or property type, which could delay your approval or even disqualify you.

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    Focusing only on the lowest rate

    A low interest rate can be tempting, but it might come with higher fees or less favorable loan terms, costing you more in the long run

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    Rushing through paperwork

    Skimming through documents without fully understanding them can lead to unexpected fees or unfavorable terms later on.

FAQ About How to Choose a Mortgage Lender

Remembering certain tips when looking for a mortgage lender can make a big difference in your homebuying experience. Factors like credit score, lender type and the number of applications you submit all play a role in finding the right match. Here are some common questions homebuyers usually ask during the lender selection process.

What should I look for when choosing a mortgage lender?

Is it better to go with a bank or mortgage broker for a home loan?

How many mortgage lenders should I apply to?

How does my credit score affect my choice of mortgage lender?

Can I change mortgage lenders after preapproval?

How do I find a mortgage lender for first-time homebuyers?

About Zachary Romeo, CBCA


Zachary Romeo, CBCA headshot

Zachary Romeo is a certified Commercial Banking and Credit Analyst (CBCA), and the Head of Loans and Banking at MoneyGeek. Previously, he led production teams for some of the largest online informational resources in higher education, with over 13 years of experience in editorial production.

Romeo has a bachelor's degree in biological engineering from Cornell University. He geeks out on minimizing personal debt and helping others do the same through people-first content.