Mortgage Shopping? Here's How to Pick the Right Lender

To call the current housing market "difficult" might be a massive understatement. The supply of homes for sale is still down, and mortgage loan rates are more than twice what they were in the salad days of 2020 and 2021 -- as of this writing, we're looking at an average rate of 7.5% for a 30-year fixed-rate mortgage, according to Freddie Mac.

If you're hoping to buy a home, it's natural to feel discouraged and perhaps even a bit hopeless about your prospects for finding an affordable mortgage loan. Thankfully, there are a few considerations you can make that will help you narrow down your prospective lenders and find the right pre-approval options.

1. Consider your credit

Your credit history is a significant factor when you're seeking out a mortgage loan. A mortgage is likely to be the largest sum of money you'll ever borrow in your life. The lenders you apply with will take a deep dive into your credit report on the way to (hopefully) approving you. With that in mind, you can make a few moves ahead of time to put yourself in the best possible position to find the right lender if you have less-than-stellar credit.

Have a look at your credit score before a lender does (your FICO® Score is the best option here; it's used by 90% of lenders, and you may have access to it through a credit card issuer or your bank). And while you're at it, head over to AnnualCreditReport.com to get copies of your credit reports from the three major consumer credit bureaus. If your credit score is on the lower side, and you have some black marks on your report, look to the best mortgage lenders for bad credit, as these lenders will be more willing to work with you.

2. Consider your down payment

Your down payment is another matter of major importance when it comes to finding a lender to work with. Some offer special programs for those with lower down payments, for example -- so if you know you'll be aiming for a 10% down payment, seek out lenders that offer flexibility in how much you can put down. Similarly, if you have a high enough credit score, you might be able to get away with just a 3% down payment on a conventional mortgage loan.

It's important to note that a down payment under 20% will add additional expenses to your mortgage loan in most cases. You'll have to pay for private mortgage insurance (PMI) on a conventional loan with less than 20% down. You'll likely also have more options among the best mortgage lenders if you can make a 20% down payment.

3. Consider what type of mortgage you want

There is no one-size-fits-all mortgage loan, which is actually good news for you as a buyer -- even if it means you might need to do more research and legwork before applying for different types of loans.

• If you're a first-time home buyer and your credit score isn't the greatest, an FHA loan might be a good fit for you.
• If you're a current or former military service member, you may qualify for a VA loan.
• Live in a rural area? Look into USDA loans. All these government-backed mortgage options have less stringent credit score and income requirements than conventional loans do.

If you have another special factor that will figure into your search for a mortgage, such as being self-employed with irregular income, you might want to seek out a non-qualified mortgage. The process for getting one of these is nearly the same as for a traditional mortgage, but you'll likely need to provide more or different financial information to prove your income if it's irregular, such as tax returns rather than pay stubs or W-2s.

Today's market may be less than ideal (there's that understatement again), but the wide selection of mortgage lenders and types of home loans could mean that the right lender is out there for you, and you've just got to dig a little bit to find it. Use the above pointers to help you narrow your search.