How To Save Hundreds By Choosing The Right Mortgage Lender | NerdWallet

If you're thinking about buying a home, hopefully you've heard the advice that you should compare mortgage lenders. Comparing lenders can save you serious money. Research from Freddie Mac showed that in 2022, a buyer who got mortgage interest rate quotes from at least two lenders would have saved as much as $600 a year. And a buyer who got rate quotes from at least four lenders could have saved up to $1,200 annually. But there are a ton of mortgage lenders out there. How do you even start looking? How do you know what to look for? Well, today we're going to talk about how to choose the best mortgage lender for you. We're going to go through two rounds of strategies that you can use to make your lender search more manageable. Now, with each of these, you could use all of them or you could just choose the one that works best for you in order to narrow down your lender search. Option A to get started is by looking at loan type. Do you know what kind of mortgage you want? Now, if you don't, that's totally fine. You can just choose a different way in. But if you've done some research and you know you want a specific type of loan, that can help you begin to narrow down the list of lenders. Now, if you're looking for a conventional loan, you have kind of all of the options. Conventional loans are by far the most common type of purchase mortgages out there. And so if a lender offers mortgages at all, they'll definitely offer you a conventional loan. If you're looking for a loan type that's not conventional, that's a good way to cut down your list. For more common loan types like FHA or VA loans, look for lenders that specialize in these loans. Plenty of lenders are FHA or VA approved, but not all lenders actually have any kind of specialization with these loans. How can you figure that out? Well, take a look at the different lenders' websites. Is the loan something that they just offer as part of a list? You know, here are all the mortgages we offer. Or do they actually have pages that give information just about that type of loan, blog posts, FAQs, or other kinds of stuff that lets you know that they actually work with a good number of FHA or VA borrowers. Now, this isn't always going to hold. If you're looking for a more unusual type of loan, like a USDA loan, you might simply be looking for a lender that offers that type of loan at all. Another option is to look at lender type. There are a lot of different kinds of companies that offer mortgages. And so if you know that you want a certain type of lender, you can use that to narrow things down a bit. Now, each lender is different, but we can make generalizations about some of the broader categories that lenders fall into. Some companies only make mortgages. That's their entire business, just doing home loans or loans that are adjacent to mortgages, like home equity loans. These lenders are technically called non-bank lenders. That's not something you'd hear in everyday conversation, but when you're searching online for mortgage lenders, it's a distinction that can be helpful. Non-bank lenders usually don't have physical locations, so when you're working with them, you're online, on their app, or talking on the phone. Examples of non-bank lenders you might have heard of include Rocket Mortgage and Guaranteed Rate. Banks offer lots of types of financial services, including in many cases, home loans. Sometimes if you're already an existing customer, they'll offer you incentives to get a mortgage with them. Since a lot of banks have physical locations, if you wanted to sit down and talk with a loan officer in person, that can be an option with a traditional bank. Banks that have large home lending arms include Chase and Bank of America. Credit unions likewise offer a range of financial services, including in many cases, home loans. You do usually need to be a member in order to get a mortgage from a credit union, and sometimes even to apply to get a mortgage, but membership requirements are generally pretty simple to fulfill. Because credit unions are smaller and tend to be local or regional, they sometimes have more flexibility with underwriting or can offer you more personalized service. Examples of credit unions that offer home loans include San Diego County Credit Union and Navy Federal Credit Union. One last option before we narrow things down even further, think about yourself. What's your type? What are characteristics that you have that might make a difference when you're looking for lenders? This can be another way to guide your search. And the list of possible characteristics here could go on forever, but I'll give you a couple examples to get started. Let's say that you're self-employed. You make your income from your own business or from freelance or contract work. In that case, you might want to look for a lender that specializes in working with self-employed borrowers or people who have alternative or unusual forms of income. If you're a first-time homebuyer, look for lenders that work with first-timers. They might offer things like homebuyer education, down payment assistance, or loans that are specifically geared toward first-time homebuyers. If you're relatively new to this country, you could look for lenders that offer ITIN loans, which don't require a social security number. You might also look for lenders that offer alternative underwriting, which can be helpful if you don't have that much of a credit history in the United States. You can also consider looking for lenders based on your characteristics or your values. So for example, you might decide that you want to look for Black-led or Black-owned mortgage lenders, or that you're interested in finding lenders that score well on environmental, social, and governance, or ESG metrics. Either way, with any of these options, this should be something that you don't have to do too much clicking to find out about a lender. If they're promoting this on their website, if they're talking the talk and walking the walk, it should be relatively easy to tell. Another way that you can find out this kind of information about lenders, take a major shortcut and head to NerdWallet. We have roundups not only of things like the best lenders for ITIN borrowers or borrowers with credit challenges, but also the best lenders by loan type, the best lenders by lender type, really everything that we've already gone over here, all packaged up neatly for you. So that was a lot, and you probably still have a quite long list of lenders to choose from. But don't worry, we're going to go over some next-level ways that you can cut down your list and continue to zoom in on the best lender for you. Again, we're going to lay out a few options. You can choose the one that works for you, or if you want, you can just go down them like a list and do one after the other. Option A is looking at customer experience. Read online reviews of the lender and see what people have to say about them. You can find things out like how easy it is to use their app and apply online, or whether it's difficult to get a hold of your actual loan officer on the phone. Lenders usually will post glowing reviews of themselves on their websites, but if you want to see a little bit more of the darker side, you can head to the Better Business Bureau and look at customer complaints against the lender. Another thing you can look at is mortgage rates. Many lenders display sample mortgage rates on their websites. It's important to remember when you're looking at these that sample rates are just samples. Lenders will use a whole set of assumptions in order to come up with those rates, and they're things that might not apply to you. But a lot of lenders will give you tools that allow you to personalize the sample rates that you're seeing so that you can plug in things like your zip code or your credit score band and see rates that are slightly more personalized to you. Now, you're not going to see the rate that a lender will offer you until you actually apply for a mortgage with them, but in the meantime, if you're just trying to get a sense of who's higher and who's lower, this is a way that you can do it. One last thing that you can look for, offers and features. Some lenders will boast extra incentives to try to get you to get a mortgage with them. These can include perks like helping you make a same-as-cash offer, waiving private mortgage insurance regardless of your down payment amount, or having an in-house network of real estate agents. Now, these things might seem cool or useful, or maybe they'll save you some money, but when you're weighing them, it's important to consider whether you'll actually use them and how much value you're getting. So for example, having their own real estate agent network does sound pretty convenient, but are you going to actually be able to get to choose your agent at all, or are you just going to have whoever get assigned to you? You finally got a list of lenders. Awesome. Here's what comes next. If your list is still a little bit long for your case, really dig in on the lenders that you're already researching. Head to NerdWallet and check out our lender reviews. We have comprehensive, impartial reviews of tons of mortgage lenders, and one thing that these offer is options for similar lenders. So when you're researching a lender that you already know about, you'll see other lenders that have similar characteristics and that you might not be familiar with. If your list is down to a small, manageable number and you are ready to start house hunting, then it's time to apply for mortgage pre-approval. Applying for mortgage pre-approval from multiple lenders will give you an idea of how much these different lenders might qualify you to borrow, and also of the mortgage rates that you might be offered when you finally apply for a loan. Mortgage pre-approval is also an important thing to have in hand because it shows both home sellers and real estate agents that you are a serious and well-qualified home buyer. If this is feeling like a lot, that is okay, because you know what? It is a lot. But taking the time to compare mortgage lenders and find the one that's right for you is worth it. It's also worth the money because you could save hundreds of dollars per year in interest by comparing multiple mortgage lenders. So when your head is spinning and you swear that you couldn't bear to look at another lender website, just remember that this will all be worth it when you finally own a home and you feel confident about the loan you got to buy it. I'm Kate Wood, and I write about mortgages and home buying for NerdWallet. If you're worried your list of lenders is still a bit long, know that when I bought my home, I applied for pre-approval with 12 lenders. Like and subscribe for more.