How to Choose a Mortgage Lender
Use these three simple steps to find and compare the best mortgage lenders.
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One of NerdWallet's top pieces of advice for home buyers is to compare three or more mortgage lenders. That's because shopping around could save you some serious cash: Freddie Mac research reveals that a buyer who gets mortgage interest rate quotes from two lenders can save up to $1,500 over the life of the loan. A buyer who goes a bit further and gets quotes from at least five lenders can potentially pocket around $3,000 on average.
But getting rate quotes from multiple lenders can feel like a big jump when you're just starting your homebuying journey. There are obvious options, like your current bank or the lender your real estate agent suggests, but are those your best choices? Searching online for mortgage lenders will yield tons of results, so how can you make your search more specific?
The good news: there's a way to shop smarter, not harder. Here are three steps to help narrow the field and find the mortgage lender that best fits your needs.
If just looking at all this makes your head spin, you might consider working with a mortgage broker. For a fee — which is sometimes paid by the lender — a broker will do the work of finding and comparing different mortgage lenders that will fit your needs.
Step 1: Start big
Begin with a criterion that'll let you make a major cut — we've got three in this section. The most relevant one might jump out to you right away, or you might need to do some trial and error.
Loan type
If you've done a little research and know what type of home loan you're looking for, that may be an easy way in.
Skip this section if you’re looking for a conventional loan. By far the most common type of home loan, conventional loans are offered by virtually every lender. If you already know you want a conventional loan, scroll down to “Lender type.”
Government-backed loans
These mortgages are offered by traditional lenders, but insured by federal agencies. The federal guarantee encourages lenders to offer financing to borrowers who don’t meet conventional loan down payment and credit requirements.
Two common types of government-backed loans include:
Not all lenders make FHA or VA loans so if you plan on getting either of these, then focus your search on lenders who are FHA- or VA- approved. On NerdWallet's lender reviews, you can find charts that show what percentage of each major loan type lenders made last year.
If you're looking for a more unusual type of loan, like an ITIN loan or a physician loan, that's naturally going to limit your list of lenders. These loans are relatively uncommon, so you won’t see loan volume in our charts, but you can use more informal gauges.
When you're on lenders' websites, look to see how much information they have about your desired loan. Is there a dedicated webpage or blog posts, or is it just named in a list? If you can see loan officers' information, you can check whether any list your desired loan type as a specialty.
Lender type
There are lots of different kinds of lenders that offer home loans. While each individual lender is different, you can make some generalizations — and if you know you want one type, you can focus on that kind of lender.
Nonbank lenders. Companies that only offer mortgages or mortgage-related loans, like home equity loans, are called nonbank lenders. Nonbank lenders usually don't have physical locations — you work with them online, via an app, or on the phone. Nonbank lenders you might have heard of include Rocket Mortgage and Better.
Banks. Traditional banks offer lots of types of services, including mortgages. Sometimes banks will offer home loan incentives if you're already a customer, such as rate or closing cost discounts. With a bank, you may also be able to talk to a loan officer in person, though banks generally will let you apply for a mortgage online, too. Banks that have large home lending arms include U.S. Bank and Bank of America.
Credit unions. Because of their size, and also because they tend to be local or regional, credit unions can sometimes be more flexible in lending and offer more personalized service than a larger lender. You usually have to be a member to get a mortgage through a credit union, but membership is generally easy to obtain. Examples of credit unions that offer home loans are PenFed and Navy Federal Credit Union.
Borrower type
One last way to quickly size up lenders: Think about what's important to you. Do you have needs or characteristics that would make you want to get a certain loan type or work with a particular kind of lender?
For example, if your main source of income is freelance or contract work, or if you own your own business, you may want to look for lenders that work with self-employed borrowers. If you're a first-time home buyer, a lender that offers home buyer education, down payment assistance or special loan terms for first-timers might fit the bill.
You don't want to have to dig too deep for this stuff. Ideally, you'd want these qualities or loan types to be easy to learn about on a lender's website or from reading reviews.
Step 2: Narrow your list
At this point, you've still got a lot of options. Let's cut it down to size. You could choose one subcategory from this section, or work your way through all three.
Mortgage rates
Many lenders display sample mortgage rates online. These samples assume a certain type of borrower, down payment amount, location and so on, but that can be enough to give you an idea of how lenders stack up against each other.
Some lenders will let you personalize sample rates by plugging in info like your credit score band, how much you're trying to borrow and your down payment amount. You won't know the actual mortgage rate you'd be offered until you apply, but checking out sample rates and playing with lenders' rate tools can give you an idea of how they compare.
Customer experience
Look at online reviews and forums. What do other borrowers say about this lender and what it's like to apply with them online or go through the mortgage application process? Lenders will often post glowing customer reviews on their websites, but you can also look on sites like the Better Business Bureau to view customer complaints. Seeing how a lender responds to customer concerns can also be telling.
Offers and features
Some lenders boast incentives to encourage you to choose them, such as:
Helping you make a same-as-cash offer
Waiving private mortgage insurance
Providing a network of real estate agents
These kinds of perks could sweeten the deal for you, but be sure they're things you'd actually use. For example, having a real estate agent network is convenient, but are you going to be able to choose your own agent or is one just going to be assigned to you? If a lender offers cash back at closing, make sure you understand what you'd need to do in order to qualify.
Step 3: Fine tune
Narrow to your finalists. If you're not down to three lenders yet, you may want to go back and use another criterion to cut it down to size.
Check lender reviews. Look for impartial, comprehensive lender reviews from real-live experts.
Apply for mortgage preapproval. If you've got your list down to a small number and you're ready to start house hunting, go ahead and apply for mortgage preapproval from those lenders. Mortgage preapproval is free and there's no limit to how many lenders you apply with. It involves a hard credit pull, but if you complete all your preapprovals within 45 days, credit bureaus should recognize that you're shopping and only ding you once.
Applying for mortgage preapproval will give you an idea of how much you might be able to borrow and what rate you could be offered, and provide a test drive of what it would be like to work with that lender. And you'll want a preapproval in hand anyway to show real estate agents and home sellers that you're a qualified, serious buyer.
Feeling overwhelmed?
If this feels like a lot, that's because it is. (And if you want to skip all this, working with a mortgage broker is an option. It can be a less hands-on process, which for some borrowers is a good thing.) But taking the time to find the right mortgage lender could help you secure a better loan and potentially save money.
NerdWallet writer Isabella Angelos contributed to this story.
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