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Written by
Andrew Dehan
Andrew Dehan writes about real estate and personal finance. His work has been published by Rocket Mortgage, Forbes Advisor and Business Insider. He’s also a poet, musician and nature-lover. He lives in metro Detroit with his wife and children.
Edited by
Troy Segal
Troy Segal is a senior editor for Bankrate. She edits stories about mortgages and home equity, along with the finer financial points of owning and maintaining a home.
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Because a mortgage is one of the most substantial financial commitments you’ll make in a lifetime, it’s important to do your due diligence and ensure you’ve investigated all of your options thoroughly. Before you choose a mortgage lender, though, you must shop around and compare multiple offers to get the best deal. Regular payments on the same sized loan can vary by $100 a month, according to a recent survey by the Consumer Finance Protection Bureau. Over the 30 years of a mortgage, this difference could save you $36,000.
Keep reading to learn how to compare mortgage offers and find the best loan for your needs.
To ensure you get the best offer you can, there are some steps you need to take.
Before you start to shop for mortgage offers, it’s important to determine what type of mortgage you want to apply for and what might be best for your current financial situation, as well as your short- and long-term goals. Some of the questions that can help identify the most suitable mortgage for your needs include:
Answering these questions will help determine the best loan term for your needs. For example, if you have a lower credit score, an FHA loan may be the best option for you because they come with lower credit requirements than a conventional mortgage. VA and USDA loans require no money down, which is a huge appeal for those who qualify.
These questions can also help you narrow down whether it makes sense to apply for a fixed-rate or adjustable-rate mortgage (ARM). For those who plan to stay in a home long-term, a fixed-rate may make the most sense. However, if you plan to sell within, say, five years, an ARM could give you a lower payment.
Knowing where to apply for a mortgage can also help you find the best fit for your needs. There are many different types of lenders, including brick-and-mortar banks, credit unions and mortgage companies. Each offers slightly different mortgage options.
National or regional banks are for-profit businesses and as a result their mortgages may come with more fees than some other options. But banks are also able to offer a variety of loan options, which may be important to you, and of course other services, allowing for one-stop-shopping.
Credit unions, by contrast, are non-profit operations and often charge fewer fees. And if you’re looking for the lowest rate possible, credit unions may also be a better bet, as they’re known for offering competitive loan terms. You may also find more flexible lending criteria at some credit unions. However, they may offer few choices.
Mortgage companies, many of which are online operations, are an increasingly large part of the industry. Also known as non-bank lenders, they specialize in home loans; in fact, that’s typically all they do. So, not so good if you want to have a CD, savings account, checking account and mortgage all in the same place — but very good if you want an unusual product, a range of options or competitive terms. Many also are quite speedy, offering preapprovals, closings and fundings within days — especially the digital firms.
Once you know the kind of mortgage and term you want, gather documents that show your income, investments, debt and more. In order for lenders to give you the most accurate quote, they’ll need your:
By having these documents ready ahead of time, you can make the mortgage application process quicker and easier.
Once you have your documents handy, you can start comparing mortgage offers online. Talk to your bank and any other financial institution you have a relationship with because they may offer better deals to existing customers. Many banks award you a better rate if you set up automatic payments, or transfers, from an in-house account. It’s a good idea to ask family and friends for referrals, too.
When comparing offers, there are some other things you should consider:
A mortgage broker is actually not a lender. Instead, they act as your representative, seeking out loans for you. Brokers work with an array of lenders and as a result, are often able to offer the widest variety of mortgage options, including ones you would not find on your own (some lenders work exclusively through brokers). This can be especially helpful if you have unique financial needs or situations (spotty credit history, uneven income). Brokers make comparison-shopping easy and often help you apply, too. In exchange for their services, however, a mortgage broker charges a fee — an expense on top of your mortgage and all its costs.
Don’t be shy about reaching out to a mortgage lender by phone or even in person as you shop around. It can be a good idea to speak directly with a loan officer who can assess your financial situation and advise.
It’s also important when shopping around for lenders to consider their online reviews and ratings. Taking the time to review this information can be very revealing including telling you which lenders are known for providing the best customer service and most competitive rates. As you’re looking at reviews, keep an eye out for customer service details: whether the lender responds to criticism and promptly addresses concerns.
The loan estimate is an official three-page document that lists several key numbers associated with your loan, including:
Every lender is legally required to provide you with a loan estimate within three days of getting your application and pulling your credit report.
On the loan estimate, keep an eye out for:
Comparing loan estimates can help determine which offer is more cost-effective. Some lenders promise low interest rates but also charge excessive fees and closing costs, so make sure you pay attention to all the loan terms, not just the rate.
Lenders may also quote you a low rate made possible by purchasing mortgage points. Also known as discount points, these are upfront fees you pay to lower your interest rate. Depending on the cost of those points, this approach may not make sense for you. A different lender may be able to offer you the same rate or better without the need for points. Again, how long you plan to stay in the home and keep the mortgage is a key factor in deciding whether to “buy down the rate,” as the financial pros put it. It’ll take a few years to break even on upfront costs of the points and for your savings to start.
Shopping around for a mortgage is an important step to ensure that you’re getting the most competitive rate and mortgage terms possible. It’s an effort that can save a substantial amount of money up front and over the life of a mortgage as well. Even an interest rate savings of as little as 0.1 percent, for instance, can result in thousands of dollars remaining in your pocket over the life of a mortgage, according to Bankrate’s mortgage amortization calculator.
In addition, many homebuyers don’t realize that the price and terms offered on a mortgage may be very different from one lender to the next, as each lender sets its own underwriting guidelines. You may even be able to negotiate certain costs with a particular lender.
Shopping for a mortgage is well worth your time, especially if you plan to remain in your home for the long term. Not sure where to start? Check out Bankrate’s mortgage rate tables, which let you plug in general information about your finances and location to receive competitive quotes and tailored offers. Compare your options and read each loan estimate you receive thoroughly to choose the best deal for you.
After you’ve compared loan estimates and settled on a lender, apply for mortgage preapproval: a written statement from the lender agreeing in principal to loan you up to a certain amount. Armed with this document — which shows sellers that you have financial resources at your disposal — you can submit an offer on home and negotiate a purchase. From there, you’ll formally apply for the mortgage and undergo the full underwriting process. And, hopefully, soon be at the closing table, securing the keys to your new home.
Additional reporting by Mia Taylor
