How to Choose a Mortgage Lender

A lender can impact the mortgage you choose, your home affordability, and your home-buying experience. With countless options, comparing mortgage lenders is crucial for making an informed decision. About a third (32%) of homebuyers reported getting pre-approved by two or more lenders in a 2024 Zillow survey. The most common reasons were to find a lender who offered a better rate (36%) and a desire for a diverse mix of pre-approvals (34%).

The process of comparing lenders involves researching them to understand their reputation, mortgage loan options, fees, and terms. When choosing a mortgage lender, you want to find someone you can trust who makes you feel comfortable discussing your finances. In addition, you’ll want to find a lender that offers the best possible rate, loan options and terms for your specific financial situation.

This guide is designed to empower you by providing clear steps to find the ideal mortgage lender that aligns with your financial goals.

1. Understand your finances

Before you start comparing lenders, understand your financial health to determine which lenders are likely to approve your mortgage application and offer you the most competitive terms.

Begin by reviewing your credit score, as it plays a significant role in mortgage approval and interest rates. A higher credit score generally results in better loan terms, so knowing your score can help set realistic expectations when shopping for a lender.

Next, calculate your debt-to-income ratio (DTI), which measures your monthly debt payments relative to your monthly income. Lenders use this figure to assess your ability to manage additional debt. A lower DTI indicates a healthier financial position and may lead to more favorable loan terms.

Finally, establish a budget that considers your down payment, closing costs, and monthly mortgage payments. Understanding your budgetary constraints helps guide your mortgage comparison, ensuring you select a lender offering terms that align with your financial capabilities.

2. Gather recommendations and research lenders online

Once you understand your financial situation, start by asking friends, family, or coworkers for lender recommendations based on their experiences. Personal referrals often provide valuable insights into customer service and satisfaction.

In addition to personal recommendations, research mortgage lenders online. Every lender has unique loan products, so what works for one borrower might not be suitable for your needs. Visit lender websites to learn about their loan products, interest rates, and customer reviews. Online reviews can offer insight into customer experiences, helping you identify lenders with consistent, positive feedback.

Don't forget to explore local banks, credit unions, and mortgage brokers. Each may offer unique benefits or programs tailored to your needs. Comparing these options alongside larger national lenders ensures you have a comprehensive understanding of available choices.

3. Compare loan products

Once you have a list of potential lenders, start evaluating the types of loans each lender offers. Each loan type has specific benefits and drawbacks, so understanding these differences is crucial for selecting the best fit for your financial situation. You can speak with one of our loan officers at Zillow Home Loans* to learn more about your loan options. Here are some of the most common types of mortgages:

• Conventional: Private lenders offer conventional loans and typically require a minimum credit score of 620. Conventional loans are often a good choice for borrowers with strong credit and stable income.
• FHA: A popular first-time homebuyer mortgage option is an FHA loan. They come with flexible credit requirements and lower interest rates. You can typically qualify for an FHA loan with a credit score as low as 500, as long as you make a 10% down payment.
• VA: VA loans are available to eligible veterans, active-duty service members, and some surviving spouses. They don’t require a down payment and offer competitive interest rates.
• USDA: If rural or suburban living is something you’re interested in, consider a USDA loan. They’re designed for low- to moderate-income borrowers, and require no down payment with lower interest rates.
• Jumbo: When you need a larger mortgage, jumbo loans are generally the go-to option. They typically have stricter requirements, but allow you to borrow large amounts above the conforming loan limit.

4. Compare rates and lender offerings

Interest rates are a critical factor when comparing mortgage lenders, as they directly affect your monthly payments and long-term costs. Obtain rate quotes from multiple lenders, paying attention to both the interest rate and the annual percentage rate (APR), which encompasses fees and other charges.

Remember that interest rates fluctuate, so timing is essential. Monitor rate trends and obtain updated quotes from lenders to ensure you're comparing current rates. This diligent approach helps you lock in the best possible rate when you're ready to apply. Some lenders may also connect borrowers to grants or down payment assistance, which can also help lower their housing costs. About a third (33%) of buyers surveyed reported getting this kind of assistance through their bank. 

5. Evaluate fees and closing costs

Fees and closing costs are important aspects of mortgage comparison. These costs vary among lenders and can significantly impact your financial commitment. Understanding these expenses helps you make informed decisions and avoid surprises during the mortgage process.

After you apply for a mortgage, you’ll receive a Loan Estimate, detailing the interest rate, lender fees and closing costs. You can apply with multiple lenders at once and use the Loan Estimate to compare costs. By comparing these estimates, you can identify variations in costs and select a lender offering the most competitive terms.

Focus on the costs that a lender controls, not the ones they don’t, such as homeowners' insurance and property taxes. One lender might estimate low to win business with “lower closing costs,” while another may estimate high to ensure you are fully prepared. A loan officer should be able to walk you through the various fees found on the Loan Estimate.

Be aware of any potential hidden fees, such as prepayment penalties or rate lock fees. Almost all buyers (91%) said they did not fully expect to pay at least one cost or fee, out of the five fees Zillow asked about. The most common unexpected fee was a loan origination (66%). Understanding these additional costs ensures you have a clear picture of your total financial commitment when selecting a lender. 

6. Assess their customer service

Communication is vital to a positive lending experience. A lender's responsiveness and willingness to address your concerns can make or break your mortgage process. Evaluating these aspects ensures you select a lender who values your business and supports you throughout the home-buying journey.

During your interactions with lenders, pay attention to how promptly they respond to inquiries and their willingness to answer questions. A lender who is transparent and communicative demonstrates their commitment to providing exceptional service.

Additionally, consider the lender's online tools and resources. Many lenders offer user-friendly websites and mobile apps that streamline the mortgage process and provide valuable information. Choosing a lender with robust online resources can enhance a positive experience from start to end.

7. Understand lender requirements

Before finalizing your lender choice, familiarize yourself with their requirements and pre-approval process. Understanding these factors ensures a smooth application experience and helps you prepare necessary documentation.

Lenders may have specific criteria for credit scores, down payments, and employment history. Knowing these requirements enables you to determine your eligibility and identify any areas for improvement before applying.

The pre-approval process varies among lenders but typically involves submitting financial documents, such as pay stubs, tax returns, and bank statements. Being prepared with these documents can expedite the process and demonstrate your seriousness as a borrower.

8. Consider lender reputation

A lender's reputation and stability are crucial factors when comparing mortgage options. A reputable lender with a proven track record can help ensure you receive reliable service and competitive terms throughout the mortgage process.

Research each lender's reputation by examining industry ratings and customer reviews. Lenders with positive feedback and high ratings are more likely to provide a satisfactory experience.

Additionally, consider the lender's financial stability. A stable lender can better weather economic fluctuations and provide consistent service throughout your loan term. Evaluating these factors helps you choose a lender with the resources and expertise to support your mortgage needs. 

9. Analyze rate lock and buydown options

When comparing mortgage lenders, their interest rate options are not always considered but can be crucial to the decision process. Understanding each lender's interest rate policies can potentially save you money and prevent you from spending unnecessary cash upfront.

A rate buy-down can temporarily lower your interest rate at the start of your mortgage or for the entire duration of the loan for a fee. To temporarily buy-down your rate, you typically pay a fee for one to three years. To permanently buy-down your rate, you’ll purchase mortgage points at closing to lower the interest rate for your loan term.

A rate lock secures your interest rate for a specified period, protecting you from rate increases while your loan is processed. Lenders may offer different rate lock durations, typically ranging from 30 to 60 days. Longer rate locks provide more time to complete the mortgage process but may come with additional fees.

Evaluate each lender's offering and determine which best aligns with your timeline and budget. Knowing these details ensures you have a clear understanding of your financial commitment and can confidently proceed with your lender choice.

10. Make your decision and apply

After thoroughly comparing mortgage lenders and evaluating your options, it's time to make your decision and apply. Selecting the right lender involves assessing all factors, including interest rates, fees, customer service, and lender reputation.

Once you've chosen a lender, review their application process and gather necessary documentation to expedite approval. Being prepared and organized can streamline the process and demonstrate your seriousness as a borrower.

Finally, submit your application and await pre-approval. This step confirms your eligibility and provides a clear picture of the loan terms you qualify for. With pre-approval in hand, you're one step closer to securing your dream home.

By shopping around and comparing lenders, you may be surprised by what you learn and discover. Kickstart your search by contacting a mortgage lender near you.

*An equal housing lender. NMLS #10287