Buying a home is a big commitment that can have lasting impacts on your financial future for years to come. Yet despite it being such an important decision, far too many people neglect to do the appropriate research when securing financing.
Pick the wrong bank or mortgage lender, and you could end up paying six figures or more over the life of your loan. But finding a mortgage lender that's right for your situation will help you save big and sleep better at night. In this guide, we'll show you exactly how to pick a mortgage lender that's right for you so you feel confident that you’re getting the best possible deal.
What to Consider Before Shopping for a Home Loan
Finding the best place to obtain a home loan begins with understanding the various types of lenders available and the reasons for choosing one over another.
If one grocery store charged you $12 for milk...and the place across the street sold it for $4, what would you do?
You would walk across the street, right?
It sounds like a no-brainer. But when it comes to choosing a lender, most people don't shop around. They simply go with the first bank that comes to mind. However, not knowing how to choose a mortgage provider can ultimately cost you tens of thousands of dollars over time.
In order to know how to find a lender for a home loan, you should determine:
- Which banks and lenders offer the most competitive rates right now
- Which lender is right for you based on your income, credit score, and employment situation
- The key differences between banks, credit unions, and mortgage brokers
The best place for a home loan can vary depending on you and your financial goals. Therefore, it's essential to carefully consider your options and understand what is available before selecting a mortgage lender. Here are a few actionable tips to make the process easier.
8 Tips For Choosing the Right Mortgage Lender
1. Don't Assume Big Banks Have the Best Rates
It’s a common misconception that big banks are automatically the best mortgage lenders. Sure, they're familiar. But familiar doesn't mean affordable.
The truth is, big banks often have higher rates, more red tape, and less flexibility than you think. So don't just default to your usual spot when shopping for a mortgage loan because it feels easy. You could miss out on a great deal by failing to explore all your options.
2. Always Shop Around
You wouldn't buy the first car you test drive, right? Then, you shouldn't just go with the first lender that offers you a pre-approval.
The Consumer Financial Protection Bureau recommends that you reach out to at least two or three lenders and compare them side by side. Use a loan estimate form when mortgage rate shopping to compare apples to apples.
Even if two lenders offer you the same rate, the closing costs could be wildly different. So, make sure you know what you're looking at and how it will affect your pockets in the long run.
3. Mortgage Brokers Can Sometimes Beat the Banks
Many people believe that going directly to the lender is the most sensible option. But in many cases, mortgage brokers can get you a better deal. Brokers have access to wholesale rates and a wide range of reputable mortgage lenders you may not have considered.
Especially if you have a non-traditional income, a unique property, or you want someone to shop around for you, brokers can help you find a mortgage company that best fits your criteria, making them well worth looking into.
4. Credit Unions Are a Hidden Gem
Credit unions are often overlooked, but they can be a great option for the right type of borrower. They're smaller and also more relationship-focused. In many cases, they also offer better rates and lower fees, especially if you're a W2 employee and have solid credit.
According to the National Credit Union Administration, in Q4 of 2024, the average interest rate for a 30-year fixed-rate mortgage offered by credit unions was 6.73%, compared to the 6.84% offered by banks. The difference may seem small, but it can quickly add up over the life of the loan. So don't sleep on credit unions when shopping for mortgage rates.
5. Non-Traditional Financing Is Worth Exploring
For certain types of borrowers, non-traditional financing can be a lifesaver. You may have a harder time getting approved with a good rate from a bank or credit union if you aren't a traditional employee with W2's and other documentation to prove steady income.
If you're self-employed, an investor, or looking for something unique, consider bank statement loans, interest-only loans, or asset-based financing. These non-traditional lenders think outside the box, and sometimes, that's exactly what you need to get the deal done.
6. The Best Lender for You Depends on Your Profile
There's no one-size-fits-all approach to choosing the right lender. It all comes down to who you are and what you're looking to buy.
Q: Are you a salaried employee with perfect credit?
A: You may be able to secure great terms from a credit union or even a national bank.
Q: Are you self-employed or have multiple streams of income?
A: A broker or portfolio lender might be your best bet.
So, if you want to know how to pick a lender, match them to your reality, not someone else's.
Everyone's situation is unique, and it’s crucial to find the best lender for your specific circumstances if you want to secure the best rate.
7. Ask the Right Questions
Knowing the right mortgage loan questions to ask is half the battle. Don't just ask, "What's the rate?". Go a bit deeper so you know what you're getting yourself into.
Questions to ask a home loan lender:
- What's the APR?
- What are the total closing costs?
- Can they close in under 30 days?
- Is the pre-approval fully underwritten or just a soft pull?
The answers will tell you far more than a shiny rate quote.
8. Don't Just Focus on the Rates
It's easy to get hung up on the numbers. While rates are certainly important, you want to consider the bigger picture.
Look at the full loan package. That includes the service, flexibility, communication, and speed. Sometimes, a slightly higher rate is actually the better deal because it comes with lower fees or better execution. Knowing how to shop for the best mortgage rates requires considering all relevant factors and not getting too hung up on the rate itself.
Now that you know how to pick a home loan lender that works for you, you're well on your way to getting a good rate. But knowing the basics of rate shopping is one thing. Using that knowledge to secure financing and get a great deal on a home is where the hard work starts. That’s where Undivided can help.
