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