How To Choose A Mortgage Lender: Steps, Tips & FAQs

When home shopping, one of the first choices you must make is which mortgage lender to use. After all, most people don’t have enough money to pay for a house in cash, which is why four out of five home buyers financed their home purchase in 2023, according to the National Association of REALTORS^® (NAR). However, with so many options, knowing how to choose a mortgage lender can be tricky.

Qualities To Look For In A Mortgage Lender

As you search for a mortgage lender, look for these qualities:

• Positive reviews. A mortgage lender that comes highly recommended by past clients is more likely to provide a good borrowing experience.
• Good communication. Lenders who communicate clearly and promptly are better at addressing concerns, preventing misunderstandings and providing loan updates.
• Flexibility. Flexible lenders will do what it takes to find a tailored mortgage solution that best aligns with your needs and goals — even when it’s inconvenient. 
• Tech capabilities. Lenders who use the latest technology in their business tend to process applications faster and be more efficient overall — saving you time and effort.
• Transparency. Lenders who are open about their rates, fees and loan process help you understand what you’re getting into.
• Competitive rates and terms. Compare a lender’s interest rates and terms with those offered by competitors to help ensure you get the best deal.

How To Find A Mortgage Lender In 7 Steps

Now that you know what to look for in a mortgage lender, here are seven steps to finding one:

1. Research Top Mortgage Lenders Online

Start by searching for mortgage lenders online with search engines like Google and lender comparison sites. Pay attention to user reviews and ratings. You may also want to check the Nationwide Mortgage Licensing System & Registry (NMLS) to verify that a lender is licensed.

2. Ask Homeowners For Recommendations

Trusted homeowners can offer valuable firsthand insight into different mortgage lenders. Ask them about how it was to apply for a loan, their experience with the lender since and whether they’d use them again. This can help you narrow your choice.

3. Strengthen Your Finances

Meeting the financial requirements for a mortgage upfront can expand your pool of potential lenders and lead to more favorable mortgage terms. Here are the typical prerequisites for various loan types:

• Conventional loan: Most conventional mortgages require a minimum credit score of 620 and a down payment of at least 3%. Keep in mind, however, that if you put down less than 20%, the lender may require you to get private mortgage insurance (PMI).
• FHA loan: FHA loans require a minimum credit score of 500 or 580, depending on your lender and financial situation. If your credit score is between 500 and 579, you must also make a minimum down payment of 10%. If it’s 580 or higher, you can put down as little as 3.5%. Borrowers must also pay a mortgage insurance premium (MIP). 
• VA loan: VA loans don’t require any down payment or PMI, but there is a funding fee. Also, you must be a veteran or active-duty military member or eligible surviving spouse of one. The minimum credit score varies by lender. At Rocket Mortgage^® it’s 580.  
• USDA loan: USDA loans don’t require a down payment or PMI. However, borrowers must buy in an eligible rural area and pay a guarantee fee of 1% at closing and an annual fee of 0.35% of the loan. The minimum credit score requirement is typically 640. Rocket Mortgage® does not offer USDA loans at this time.
• Jumbo loan: Because jumbo loans exceed conventional loan limits, they tend to have stricter qualification criteria. Most require a down payment of at least 10% and a minimum credit score of 680, though it depends on the loan amount and term.

4. Establish The Amount You’re Willing To Spend

Deciding how much you’re willing to put toward a monthly mortgage payment can help you evaluate loan options faster. Furthermore, most lenders won’t issue mortgages that require you to spend over a third of your gross income on housing. Establishing a maximum affordable monthly payment upfront can save you and potential lenders from discussing unrealistic loans.

5. Request And Compare Estimates From Several Lenders

When you apply for a mortgage, the lender must provide you with a loan estimate within 3 business days. This is a standardized three-page form that outlines the mortgage terms and how much you can expect to pay. It’s not a loan approval or denial — just an estimate.

Since the form is the same across lenders, it’s relatively easy to compare loan offers — including the interest rate, closing costs, and other important details.

To request a loan estimate from a lender, all you need to provide is your name, your income, your social security number, the address of the home you plan to purchase, an estimate of the home’s value, and the loan amount you want to borrow.  

That said, you can volunteer more information regarding your financial situation to help the lender provide a more accurate loan estimate.

6. Ask Questions And Negotiate

With a loan estimate in hand, be prepared to ask the lender questions and negotiate terms to get the best mortgage possible. For example, you might ask whether you’ll have to pay for private mortgage insurance (PMI), if there’s a prepayment penalty, how often they’ll update you on the loan’s progress and who your point of contact will be.

Keep in mind that many loan terms — typically found on the loan estimate — are negotiable to some degree:

• Interest rates
• Monthly payments
• Discount points
• Rate locks
• Closing costs
• Prepayment penalties
• Mortgage insurance premiums
• Escrow requirements

7. Apply For Preapproval

Eventually, you’ll want to apply for a mortgage preapproval. This involves a lender verifying your income, creditworthiness, debt-to-income (DTI) ratio and other financial details to extend a conditional loan offer.

Essentially, the lender is committing to lend up to a certain amount for a home provided your financial situation doesn’t change. Bear in mind that most preapproval letters are good for 60 – 90 days, after which they must be renewed.

Preapproval letters help narrow your home search and strengthen your offers. This is because sellers don’t want to waste time entertaining offers that’ll fall through, and a preapproval letter is a strong signal that yours won’t, giving you a competitive edge.

Tips For Finding A Mortgage Lender

Of course, finding the right mortgage lender isn’t always easy. At times, it can be a confusing and daunting process. To help you navigate it successfully, here are some tips:

Be Prepared To Spot Mortgage Scams

Unfortunately, there are bad actors who take advantage of homebuyers with mortgage scams.

For example, some steal prospective homeowners’ money by impersonating escrow officers, lenders or real estate agents and asking buyers to transfer funds to illegitimate accounts (aka mortgage wire fraud).

Other times, scammers will lure prospective homebuyers with attractive loan terms only to change them at the last minute and leave the buyer stuck with a high interest rate or fees (aka bait-and-switch scams).

To avoid such mortgage scams, remember to review loan terms closely, verify lenders’ credentials, be wary of unsolicited offers and watch for red flags.

For example, avoid any lender who charges upfront fees (other than to run a credit check for $30 or less), ignores your personal finances, claims they don’t consider your creditworthiness, won’t disclose how they make money or won’t provide an official loan estimate within 3 business days. 

Understand The Different Types Of Mortgage Lenders

On top of various mortgage types, there are different kinds of mortgage lenders. Understanding their unique capabilities and differences can help you choose the right one.

• Mortgage bankers: This is the broadest category of mortgage lenders. It’s any person or entity that originates mortgages, meaning they issue mortgages with their own funds or borrowed funds.
• Mortgage brokers: These are intermediaries who match prospective homebuyers with mortgage lenders. They may help you find more favorable loan options than you could find on your own.
• Credit unions: These are non-profit financial cooperatives, many of which offer mortgages to their members from their pooled funds.
• Online lenders: Unlike traditional mortgage banks, online lenders don’t necessarily have brick-and-mortar locations. Consequently, they tend to have fewer overhead costs and often pass those savings on to their customers via lower interest rates and fees.
• Portfolio lenders: These are lenders who don’t sell their loans on the secondary market (for example, to Fannie Mae or Freddie Mac). Instead, they keep them in their own “portfolio,” thereby assuming more risk (and charging borrowers more) but also offering more loan options.

Bring Your Documentation

Bringing necessary documents to your meeting with a lender can simplify the mortgage process.

Among other things, lenders commonly ask for personal identification (driver’s license or passport), income verification (W-2 forms, tax returns and pay stubs), employment verification (your employer’s contact information), asset verification (bank and investment account statements) and your Social Security number to pull your credit report.

The more of this information you bring, the faster lenders can typically approve you for a loan.

Prioritize Quality Customer Service

When comparing lenders, it may be tempting to only look at loan interest rates and terms, but don’t underestimate the value of good customer service.

Choose a lender who is responsive, communicates clearly and addresses your concerns throughout the loan process. That way, you can feel more confident you’re working with a lender who has your best interests at heart and have a better overall borrowing experience.

Understand Closing Costs

Closing costs can significantly impact the total cost of a loan, so it’s important to know what and how much they are. Some examples of closing costs include origination fees, application fees, underwriting fees, credit report fees, escrow fees, title search and insurance fees, recording fees and appraisal fees. Altogether, closing costs are typically 3% – 6% of the purchase price.

FAQs About How To Pick A Mortgage Lender

Here are answers to frequently asked questions regarding how to pick a mortgage lender:

When should I start talking with mortgage lenders?

The earlier, the better. You don’t need to be ready to buy to start talking to mortgage lenders. They can help you understand your budget, explore different loan options, address any credit issues or concerns and get you preapproved. That way, you can compare loan offers and when the right loan opportunity comes your way, you’ll be better positioned to take it.

Does it cost money to talk with a mortgage lender?

No. Most mortgage lenders are happy to talk to potential customers for free because they want to win your business. However, if you request a loan estimate, they may charge you up to $30 to run a credit check.

What should I do before talking with a lender?

Before talking with a lender, it’s a good idea to check your credit score, review your finances, familiarize yourself with different mortgage options and gather documents commonly required by lenders. That way, you and the lender will be better equipped to assess your loan options.

What are some red flags of a potential mortgage lender?

Some red flags of a potential mortgage lender include poor communication, negative reviews, a lack of transparency, aggressive sales tactics, unrealistic promises and hidden fees or charges. When in doubt, seek the advice of a trusted professional and explore others lender options.

Are there specific questions I should ask potential mortgage lenders?

Yes, here are some questions prospective borrowers should ask potential mortgage lenders:

• What types of mortgage loans do you offer, and which do you recommend for my situation?
• What fees are associated with the loan, and can you provide a breakdown of the closing costs?
• What documentation do you require for the loan application, and how long does the approval process typically take?
• Do you offer interest rate locks, and if so, what are the terms?
• How do you communicate with clients throughout the loan process, and who will be my main point of contact?

Ultimately, the more questions you ask, the easier it is to assess and compare lenders.

The Bottom Line: Finding A Mortgage Lender Requires Research And Communication

With so many mortgage lenders to choose from, you shouldn’t settle for one that’s subpar. Instead, talk to different lenders and their past clients, compare loan offers and thoroughly vet whomever you choose to borrow from.

At the end of the day, your house will likely be the biggest financial investment of your life, so you want to get it right. Ready to take the next step? Start the loan approval process with Rocket Mortgage today!