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How to Choose a Mortgage Lender

Christy Bieber

Our Mortgages Expert

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

If you're considering buying a home, you need to know how to choose a mortgage lender. 

Your mortgage is likely the largest debt you'll take on. It's important to shop around among the best mortgage lenders to secure the most affordable home loan possible. By doing so, you can lower your monthly mortgage payment -- and save thousands over the life of your loan. 

This guide to how to choose a mortgage lender will make the process easy. Simply follow these four steps to secure the right home loan for you. 

1. Decide what kind of mortgage is right for you

Not all mortgage loans are created equal. Some are insured by the government, others meet the requirements to be sold to government-sponsored entities, and others don't fall into either of these two categories.

There are differences in qualifying requirements and loan terms for different kinds of mortgages. It's important to understand these when you're comparing mortgages. For example:

  • FHA loans, VA loans, and USDA loans are all insured by the government. There are low down payment requirements, the loans are usually easier to qualify for, and interest is reasonable. These are often among the best mortgage lenders for first time homebuyers
  • Conforming loans are mortgages that fall within a certain value range. Lenders offering conforming loans must follow rules regarding down payment requirements, qualifying criteria, and maximum loan limits. These loans must fit within guidelines set by Fannie Mae and Freddie Mac, which are government-sponsored entities that buy loans on the secondary mortgage market
  • Non-conforming loans don't meet Fannie and Freddie guidelines, so they can't be sold as easily. Loans above $510,400 as of 2020 -- or above $765,600 in certain high costs areas -- are considered non-conforming.

Most major lenders offer both conforming and non-conforming loans. However, you may have more limited options if you want a loan insured by Uncle Sam.

Want to look at some different loan options? Check out The Ascent's Watermark Home Loans Review. Watermark has a breadth of flexible loan offerings.

2. Research national average mortgage rates

In determining how to choose a mortgage lender, it's important to know what mortgage rates are reasonable.

There are many different resources where you can find national average rates. The Federal Housing Financing Agency also shows interest rates over the course of the past several months so you can compare current rates to historical trends.

If you know the prevailing rates, you can immediately disqualify any mortgage option that's above market rates.

Remember, though, that if your credit score is low, you may not qualify for favorable -- or even average -- interest rates. Try to improve your credit score as much as possible before applying for a mortgage.

3. Compare loans from different lenders

The next step in figuring out how to choose a mortgage lender is to begin comparing loan offers from different kinds of lenders. To get a good range, include at least one local lender, credit union, and online lender in your consideration.

You can use online tools to find mortgage lenders and review mortgage rate offers. Make sure you're comparing apples-to-apples when evaluating each loan estimate. Look  at:

  • Interest costs: Some lenders state their interest rate in terms of APR, which is annual interest paid without taking compounding into account. Others state their interest rate in terms of APY, which states the actual interest you'll pay -- including compounding. APY factors in how frequently interest is added to the principal. APY is usually higher than APR.
  • Points: You can pay points to reduce the interest rate on your mortgage. Each discount point costs 1% of the amount you're borrowing and generally reduces your rate by a set amount. For example, one point might lower your rate by a quarter of a percentage point. Let's say two lenders offer the same interest rate, but one requires you to pay points. The lender requiring points is actually charging more in interest. By paying mortgage points, you're essentially pre-paying your interest.
  • Loan fees: Many fees can be tacked onto a mortgage, including an origination fee, charges for appraisals, credit checks, and more. If you're comparing two similar mortgages, check how much they each cost up front.
  • Loan term: Most borrowers either take out a 15-year mortgage or a 30-year mortgage. A 15-year loan will have higher monthly payments, but it will also have a lower interest charge.
  • Fixed or variable rate: With a fixed-rate loan, your interest rate and monthly mortgage payments will always be the same. If you choose a variable-rate mortgage, though, these payments can change from month to month. Your interest rate might be low for your first few payments, but your rate (and monthly payment) could go up over time. This is one of the key factors to think about when assessing how to choose a mortgage lender. Variable rate or adjustable-rate mortgage loans are a big gamble. 

Find the loan that's going to provide the best overall deal for you. If you want minimal risk, a fixed-rate loan is a solid option -- if the upfront fees and interest charges aren't too high.

4. Research the lender's reputation

Look for a lender that treats customers fairly. Key things to focus on when deciding how to choose a mortgage lender include:

  • How difficult it is to qualify for a mortgage
  • How long it takes to get to closing
  • Whether the lender has a good reputation for customer service

There's a very good chance your mortgage loan will get sold to a different loan servicer after closing. In this case, the lender's reputation isn't as important as some of the other considerations when you're determining how to choose a mortgage lender. 

Still, you'll want to make sure the lender has a good reputation for getting deals done fairly from the start. That way, you'll be treated right as you go through the mortgage process -- even if your mortgage loan ultimately ends up in the hands of a different loan servicer. 

Knowing how to choose a mortgage lender is essential

You'll be paying off your mortgage for decades. By the time you own your home, you will have paid thousands of dollars in interest to your mortgage lender. Take the time to learn how to choose a mortgage lender and follow the steps above. That way, you'll ensure you find the best loan. And with the best loan, you can enjoy your home without worrying about how to pay the mortgage bills.

Still have questions?

Read more about choosing a mortgage lender:

The Ascent's best mortgage lenders

If you want to uncover more about the best mortgage lenders for low rates and fees, our experts have created a shortlist of the top mortgage companies. Some of our experts have even used these lenders themselves to cut their costs.