woman choosing a mortgage lender looking through papers and sitting at table

How To Choose a Mortgage Lender

TLDR

What You Need To Know

  • Your creditworthiness will be one of the biggest factors, but shopping around for lenders will give you a range of interest rates
  • If you’re more concerned with keeping upfront costs low, you should compare lenders based on their closing cost requirements
  • Asking about underwriting can give you an idea of how long the mortgage process will take with a given lender

Contents

Explore your mortgage options

NMLS #3030

*Connect with a mortgage specialist

We teamed up with Rocket Mortgage to help you get house-hunting sooner. Answer a few questions and an agent will reach out to discuss your options.

Get Started by selecting an option below

What kind of loan are you interested in?

What to expect

Tell us what you need and a representative from Rocket Mortgage will give you a call. You’ll have support at every step.

What kind of property do you want to purchase? What kind of property do you own?

Why we’re asking

Rocket Mortgage® can provide a more accurate rate estimate if they know what kind of property you’re interested in.

NMLS #3030
How do you use your property? How would you use this property?

Why we’re asking

Having a little more information upfront helps Rocket Mortgage® provide a personalized rate faster.

NMLS #3030
When are you planning to buy?

Still House Hunting?

Hope you find your dream home soon! In the meantime, it’s never too early to know your rate.

NMLS #3030
Are you a first-time home buyer?

It’s all good:

Whether it’s your first – or second property – Rocket Mortgage® can provide you with a rate estimate.

NMLS #3030
Do you have a second mortgage?

It’s all good

If you have a second mortgage, it’s no problem. Letting us know helps to customize your rate.

NMLS #3030
What is your credit score?

Don’t know your score?

Don’t sweat it! Make your best guess. Credit scores range from 300 (low) to 850 (excellent).

NMLS #3030

Enter your contact info so we can get in touch

What happens next?

A representative from Rocket Mortgage® will be in touch to discuss your commitment-free, personalized rate. Then you can decide whether you’d like to lock it in!

NMLS #3030
Your information has been sent!

A Rocket Mortgage® expert will reach out soon to discuss your options.

Your information has been sent!

A Rocket Mortgage® expert will reach out soon to discuss your options..

Prospective home buyers may assume that finding a mortgage lender is all about getting the lowest interest rate. While mortgage interest rates vary by lender and should be a major consideration, there are many other factors, too. 

Learning how to choose a mortgage lender requires understanding how lenders make decisions regarding mortgage applications. 

In this guide, you’ll learn about different types of mortgage lenders, the most important factors to consider and questions to ask a lender before making a final decision.

What Are the Types of Mortgage Lenders? 

Before picking a specific lender, you should consider which type of mortgage lender suits your real estate goals. There are several types of mortgage lenders, and each caters to different consumer needs.

Conventional lenders

Conventional lenders are typically banks or similar lending institutions that offer mortgages to home buyers. Many people choose conventional lenders because they come with certain perks, like a loan officer to evaluate your case and provide a more nuanced customer experience. 

While you may be able to find a non-conventional lender with similar services, banks and other conventional lenders tend to offer more products and services to loyal consumers.

Credit unions

Credit unions offer many of the same services as conventional banks, but they’re structured differently. While banks are for-profit businesses, credit unions are typically not-for-profit enterprises, which are collectively owned by their members. 

This relationship between the members of a credit union is known as a “common bond.” 

To qualify for a mortgage with a credit union, you’ll need to meet many of the same requirements set by for-profit lenders. 

Additionally, you’ll need to be a member of the credit union. Becoming a member also gives you access to other benefits, like higher interest rates on savings accounts, fewer fees and better loan terms. 

Mortgage brokers

A mortgage broker acts as an intermediary between you and mortgage lenders. Essentially, these brokers shop for the best mortgages available to you in exchange for a fee. 

If you’re worried about finding the best mortgage lender on your own, a mortgage broker can take the burden off your shoulders. 

Just keep in mind that brokers typically charge a percentage of the total loan amount as their commission. So even if they do find you a lender that offers better rates, a chunk of your savings could get eaten up by brokerage fees. 

Portfolio lenders

Portfolio lenders originate mortgages and carry them for the duration of the loan term. After closing, most lenders sell mortgages to agencies like Fannie Mae and Freddie Mac. 

Portfolio lenders, on the other hand, keep mortgages in-house. 

One benefit of choosing portfolio lenders is the potential to access terms and interest rates that don’t conform to those set by larger agencies. 

How To Pick a Mortgage Lender

Finding a mortgage lender requires you to think about your needs and how a lender can support them. That said, there are a few common attributes that borrowers frequently look for in mortgage lenders, such as customer service, interest rates, closing costs and assistance programs.

Customer service and attention

Quality customer service and attentiveness are always a plus when shopping for a mortgage lender. For first-time home buyers, personalized customer care can be even more important, as you want your lender to walk you through every step of the process. This is why many first-time buyers prefer the help of a mortgage loan officer.

You can always turn to online reviews of different lenders or consult the Better Business Bureau. These resources will help you gauge how well each lender treats customers.

Differences in interest rates

Mortgage interest rates are indirectly linked to the Fed Rate, as well as the larger real estate market. 

However, interest rates still vary from one lender to another. Your creditworthiness will be one of the biggest factors, but shopping around for lenders will give you a range of interest rates.

Generally, government-backed mortgages offer some of the most competitive rates. You’ll have to meet certain criteria to qualify, but these mortgage loan programs allow you to get a mortgage through a conventional lender while saving on interest and closing costs. 

Closing costs and fees

If you’re more concerned with keeping upfront costs low, you should compare lenders based on their closing cost requirements. Closing costs can include a variety of fees and expenses, including but not limited to:

While this isn’t a comprehensive list of possible fees and expenses, these are some of the most common closing costs. To reduce your upfront expenses, look for a lender who charges fewer fees or is willing to waive certain fees during the negotiation. 

Additionally, some lenders are willing to roll certain fees into the loan, giving you the ability to spread these costs out over the life of your mortgage. 

Before your closing date, you can learn how much you’ll owe in closing costs in the Closing Disclosure. Your lender will provide this document a few days before you close. 

Alternatively, you can request a summary of closing costs from a prospective lender earlier in the process. 

Available assistance programs

Closing cost assistance encompasses a wide range of programs offered by government agencies, nonprofits and private sector organizations. Some common types of closing cost assistance include grants, forgivable home loans and low-interest home loans. 

If you’re unable to afford a conventional mortgage, find a lender that provides one or more assistance programs. Depending on your eligibility, you may qualify for a Federal Housing Administration (FHA) loan, United State Department of Agriculture (USDA) loan or Veterans Affairs (VA) loan.

What Are Good Questions To Ask a Lender?

Though it can feel daunting to ask your lenders questions, it’s good to get a better understanding of what to expect from the home buying experience. We’ve prepared a few questions to help you determine the right lender for you.

What does the underwriting process look like?

Asking about underwriting can give you an idea of how long the mortgage process will take with a given lender. The length of this process could also affect some of your closing costs. 

If you’re on a specific timeline or budget, you might want to find a lender with a shorter (and hopefully cheaper) turnaround time.

How often do loans fail before close?

This is an important question to ask if you want to understand a lender’s efficiency and ability to process a loan all the way to closing. If the lender frequently fails to close, it could be a sign that they’re not functioning well. 

Getting involved with a lender that has a high failure rate could cost you time and money on processing a loan that won’t close.

According to the National Association of Realtors, roughly 73% of mortgages are successfully closed.[1] So if you encounter a lender with a failure rate above 27%, you may want to consider looking elsewhere.

What are the closing costs? 

Even if you’re early in the process, a lender can give you a ballpark idea of what you’ll need to pay in closing costs

Asking this question can save you time, especially if you’re concerned about the upfront fees and closing costs attached to the mortgage. Knowing whether or not you can afford the closing costs can also help you get a preapproval – or be the reason you go with another lender.

Is there an interest rate lock? 

Not all lenders offer a rate lock. This is why it’s so important to ask about it upfront.

A rate lock allows you to “lock in” an interest rate for a set period of time. You can lock in your interest rate for up to 60 days, which is usually more than enough time for the lender to process and close on the loan. 

Locking in your rate prevents you from experiencing an unexpected rate hike while the lender processes your mortgage.

However, the downside is you never know if interest rates will go down. 

How To Prepare

Getting a mortgage is a process, and finding the best mortgage lender takes time. Fortunately, there are several steps you can take to prepare yourself and start the home buying process on the right foot.

1. Boost your financial standing

It’s extremely important to have a good credit score and debt-to-income (DTI) ratio when you start shopping for mortgage lenders. By paying down debt and building your credit, you can qualify for better mortgage terms, regardless of the lender.

Keep in mind that building credit takes time, so be prepared to work on your credit well in advance. Also, be careful not to apply for too many loans at once, as multiple pulls can negatively impact your score.

2. Find out what type of mortgage lender works best

Once you decide which kind of mortgage lender works best for you, you’ll be able to narrow down your options.

Some factors to consider when choosing a type of lender include how much effort you want to put into the process, your loyalty to certain lending institutions and your willingness to join a cooperative credit union.

3. Choose what type of mortgage you’ll apply for

The type of mortgage you should apply for depends on what you’re looking to get out of homeownership. Each mortgage type will suit different borrowers’ needs.

  • Conventional fixed-rate mortgage: A conventional fixed-rate mortgage is best if your finances are good enough to qualify and you want predictable monthly mortgage payments for the life of the loan.
  • Conventional adjustable-rate mortgage: Conventional adjustable-rate mortgages are better if you want lower upfront costs and are willing to pay more later.
  • Government-backed mortgage: Government-backed mortgages are best for borrowers with low income, those seeking housing in rural areas, veterans or anyone who wouldn’t otherwise qualify for a conventional loan.

4. Compare fees and interest rates

Every lender has its own overhead costs to consider, as well as different levels of risk tolerance. 

Typically, lenders with high overhead and low risk tolerance offer higher interest rates and fees, while lenders with low overhead and high risk tolerance offer lower interest rates and fees.

Since there’s so much variation between lenders, you should always compare fees and interest rates during your search.

The underwriting process can also affect the fees you pay. Remember to request documentation of closing costs and other fees from each lender to know exactly how much you would need to pay to process your mortgage.

5. Get preapproved for a mortgage

While getting a preapproval letter doesn’t guarantee a borrower a loan, it does mean a lender is willing to offer a loan to that applicant. 

Preapproval letters tell you the maximum amount a lender is willing to lend to you, along with the necessary down payment, interest rate and expiration date. This can help you decide which lender will give you the best deal.

Getting preapproval from multiple lenders is one of the best ways to get an accurate understanding of different costs. 

Finding the Right Mortgage Lending Partner

As you can see, finding the best mortgage lender will require you to understand your budget and specific real estate goals. If you still feel uncertain about the process, reach out for help from a real estate agent

Ultimately, finding the right lender will come down to which factors matter the most to you — like customer service, closing costs and interest rates.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

  1. National Association of REALTORS®. “REALTORS® CONFIDENCE INDEX SURVEY.” Retrieved November 2022 from https://www.nar.realtor/sites/default/files/documents/REALTOR_Confidence_Index_052021.pdf

ICYMI

In Case You Missed It

  1. Getting involved with a lender that has a high failure rate could cost you time and money on processing a loan that won’t close

  2. Locking in your rate prevents you from experiencing an unexpected rate hike while the lender processes your mortgage

  3. The type of mortgage you should apply for depends on what you’re looking to get out of homeownership

You Should Also Check Out…