How to Choose a Mortgage Lender: Questions to Ask and How to Compare
Choosing a mortgage lender isn’t just about finding the lowest rate, it’s about avoiding costly mistakes that can create major headaches during the homebuying process or add tens of thousands to your loan. The right lender depends on your financial situation, your chosen loan type and how quickly you need to close.
Comparing multiple lenders is the only way to know if you’re getting the best deal. It also reveals the tradeoffs you’re making between cost, speed and flexibility. Below, we break down exactly how to compare lenders and choose the right one for your situation.
- It’s crucial to compare at least three to five mortgage lenders to avoid overpaying and save thousands.
- Know what to compare: The quoted annual percentage rate (APR) matters far more than the interest rate alone.
- The best way to shop for a lender depends on your financial situation, not just the price they can offer you.
How to choose a mortgage lender
The best way to choose a lender is to comparison shop, which means gathering and comparing quotes or loan offers side-by-side from at least three to five lenders.
You can do this manually, or you can use a tool like LendingTree that allows you to enter your information once and receive offers from several lenders at a time. Shopping around is a critical step because rates and fees can vary significantly — even for the same borrower profile.
Buyers who compare offers can save $80,000 or more on average over the life of a 30-year loan, according to a LendingTree analysis.
What matters most when choosing a mortgage lender
The most important factors when choosing a mortgage lender go beyond just your quoted interest rate. You should also consider the annual percentage rate (APR), total fees, loan program fit and closing speed.
- APR. The true cost of the loan, including interest, fees and points. A lower interest rate doesn’t always mean a cheaper loan, but a lower APR does signal a less expensive loan.
- Total closing costs. Some lenders offer low rates but charge higher upfront fees, which can increase your total cost.
- Loan program fit. Not all lenders offer the same loan types. Be sure you understand the basic mortgage types and which one you’re shopping for.
- Speed to close. A lender that can get you through the closing process faster can help you win a home in a competitive market.
The best mortgage lender isn’t the one with the lowest rate; it’s the one that offers the best overall value for your situation.
How to compare lenders the right way
| Your situation | Best way to shop | Reasoning |
|---|---|---|
| First-time homebuyer | Online marketplace (like LendingTree) or a mortgage broker | You can compare multiple options easily and get an idea of the true range available in the current market. |
| Bad credit | Online marketplace or specialized lenders | Since not all lenders accept higher-risk borrowers, a marketplace can help you find lenders who want your business. |
| Excellent credit | Bank or credit union | Because the large, traditional lenders compete aggressively for low-risk borrowers, you don’t need broad comparison as much. |
| Need a speedy closing | Online lender | Online lenders typically use technology to offer faster underwriting and a smooth digital process. |
| Complex finances (self-employed, variable income, etc.) | Online marketplace or a mortgage broker | Traditional lenders typically use strict rules, but brokers and marketplaces can connect you with lenders who want to work with your situation. |
How it works when you use LendingTree to shop
Enter your information once and view offers from multiple lenders within minutes!
5 rules to follow when comparing mortgage lenders
1. Do all of your loan shopping on the same day
Mortgage rates change daily, sometimes hourly. If you gather quotes on different days, you’re not making a meaningful, “apples to apples” comparison.
2. Make sure every quote is for the same loan type
The lowest rate you see among your offers may not be the best choice, especially if it’s a teaser rate. For instance, a 5/1 ARM may offer a lower initial rate than a 30-year fixed loan, but it often increases later. Similarly, a 15-year loan will come with a lower rate than a 30-year loan, but requires a higher monthly payment.
3. Compare APRs, not just interest rates
A low rate may not seem like such a great deal if you have to pay thousands of dollars worth of discount points or mortgage insurance to get it. Check the APR on each rate quote to get an idea of how much you’ll pay in total costs over the life of your loan. Typically, the higher the APR, the higher your loan costs.
4. Be prepared to discuss mortgage points
Lenders sometimes bake mortgage points into their rate offers without making that fact abundantly clear. To be sure, you should read your loan estimate carefully and ask your loan officer directly.
Borrowers have also reported feeling pressured by lenders to buy points. If your lender won’t allow you to remove the points from your loan terms in exchange for a slightly higher interest rate, you can use loan offers from other lenders to negotiate. If they still won’t budge, you need to consider taking your business elsewhere.
5. Do your “due diligence” on the lender
When preparing to borrow such a large amount of money, it’s crucial to do some basic research on any lender whose offer you’re seriously considering. Once you have a few loan offers that look promising, take time to evaluate the lender by:
- Searching for mortgage lender reviews online. Google “[lender’s name] mortgage review.” Add “LendingTree” to that search if you’d like to see LendingTree’s reviews.
- Checking customer reviews and complaint histories on sites like the Better Business Bureau (BBB) and TrustPilot.
- Confirming the lender is properly licensed in your state using the Nationwide Multistate Licensing System and Registry (NMLS) website.
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Asking direct questions like:
- What types of mortgage loans do you offer?
- What are your eligibility requirements?
- What paperwork do you require?
- Will I be able to complete the application online?
- What does the mortgage underwriting process entail?
- How long does the typical mortgage closing take?
Jump down to more detailed questions for mortgage lenders.
Mortgage lenders reviewed by LendingTree experts
More questions to ask a mortgage lender
Most buyers are familiar with the most common type — conventional mortgages — but there may be other loan types that better suit your needs.
Lenders can usually help you navigate and apply for the following standard loan types:
- Conventional loans: There are several types of conventional loans, but they’re tougher to qualify for than loans backed by a government agency. You’ll typically need a 620 credit score or higher and at least a 3% down payment. However, if you want to avoid paying private mortgage insurance (PMI), you’ll need to put at least 20% down.
- FHA loans: Insured by the Federal Housing Administration (FHA), borrowers can qualify for these loans with as little as a 3.5% down payment and credit scores as low as 580. However, you’ll have to pay two different types of FHA mortgage insurance, regardless of your down payment amount.
- VA loans: Military borrowers may qualify for a loan backed by the U.S. Department of Veterans Affairs (VA) loan if they served long enough to earn VA entitlement. VA loans don’t require a down payment or mortgage insurance for eligible borrowers, and the VA doesn’t set a minimum credit score to qualify.
- USDA loans: The U.S. Department of Agriculture (USDA) offers home loans to help low- to moderate-income families purchase homes in rural areas. The USDA only allows 30-year loans and no down payment is required. Most lenders require at least a 640 score, though other qualifying factors may be considered in lieu of a credit score and the USDA doesn’t set a strict minimum. Income and loan limits apply.
Many of the mortgage types listed above come with standardized minimum requirements, but lenders are free to be more strict — and they often are. Since not every lender has the same requirements, it’s important to seek out one that works with your financial situation and the loan program you’re interested in.
In general, this is what lenders will look for to approve your mortgage application:
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Credit score requirements:
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Loan programs with strict minimum limits:
▪ Conventional loans: 620+
▪ FHA loans: 500 to 579 with a 10% down payment, 580+ with a 3.5% down payment -
Loan programs with no set minimum:
▪ VA loans: Most VA lenders require at least a 620 score, though some may accept scores as low as 500.
▪ USDA loans: Many USDA loan lenders want to see at least a 640 credit score, but there is no program minimum.
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Loan programs with strict minimum limits:
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Income requirements:
- DTI ratio: Your debt-to-income (DTI) ratio compares your monthly debt payments (including the new mortgage) to your gross monthly income. Lenders calculate what you can afford to borrow based on this figure, and may not approve you for a loan if it pushes your debt obligations above 41% to 45% of your monthly gross income.
- Employment history: In addition to income, lenders will review your employment situation and may require two years of consistent employment history.
Don’t fall for the myth that you need a 20% down payment to buy a home. A large down payment will gain you a lower monthly payment, but many loan programs require very low or no down payments at all. Here are the minimum requirements for common loan types:
- Conventional: 3%
- FHA: 3.5%
- VA: 0%
- USDA: 0%
You can also use down payment assistance programs to reduce the burden of coming up with a down payment.
A loan’s “term” is the length of time you have to repay it, and this seemingly minor detail will have a major impact on your monthly payment amount. Most lenders offer 15- and 30-year mortgage loans, but if a less common repayment period will work better for you, shop around — you may find a mortgage with any loan term between eight and 29 years without much trouble. The important thing to understand is how the loan term you choose affects your monthly payments, interest rate and total loan costs.
- 15- vs. 30-year mortgage: A 30-year repayment term is the most common because it provides the lowest monthly payment. However, a 15-year repayment term can be a good option for those homeowners who are able to afford a higher monthly payment. A shorter term can save you hundreds of thousands of dollars over the life of the loan compared to a 30-year term.
- 10-year mortgage: The interest rates on 10-year mortgages tend to be lower than 15- or 30-year loans, so, as long as you can afford the higher payments, a 10-year mortgage might be a great way to find a low-cost loan option.
- 40-year mortgage: This is the longest loan term you’re likely to find, but they’re usually only offered to homeowners who are already in a loan and experiencing financial distress. If you want to access a 40-year mortgage outside of a loan modification program, you’ll need to find a nonqualified mortgage (non-QM) lender, since any mortgage with a term longer than 30 years falls into a class of higher-risk mortgages known as non-QM loans.
In addition to a down payment, closing costs are the other major expense involved in buying a home. Closing costs typically range between 2% and 5% of the loan amount, but in some cases, you can negotiate with your lender to reduce your closing costs or negotiate to have the seller cover a portion of them.
It’s not uncommon to pay a small fee for a credit report if you’re getting a mortgage preapproval, but you should never be charged a fee to have a loan estimate prepared or speak with a loan officer about your situation.
You can find all of the important details about closing costs and fees in your loan estimate, but it may not specify whether you have to pay any of those fees in advance. If you have any doubts or confusion, review the loan paperwork with your loan officer and confirm you have a thorough understanding of what you’ll be charged and when.
There are several different types of mortgage insurance that a lender may require you to buy. One way to avoid or reduce your insurance costs is to explore alternative loan types. You may also be able to reduce insurance costs by improving your credit score or reducing the amount of debt you carry before applying for your mortgage.
Your lender may even offer a piggyback loan, which can help you avoid paying PMI. However, there’s no way to avoid FHA mortgage insurance unless you choose a different loan type — it’s required regardless of your down payment amount.
In the dark about your credit score? Check and improve your score with LendingTree Spring.
As we covered earlier, some lenders allow you to reduce your interest rate by buying mortgage points. The amount you pay for points is essentially an upfront interest payment, but each lender has its own way of calculating the exact cost of a point. That’s why it’s important to get rate quotes, compare lenders’ pricing structures and calculate whether buying points will actually save you money on your overall loan repayment. Don’t assume that points will benefit you without doing the math.
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