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Really, How am I Supposed to Compare Mortgage Lenders?

Written by:  

Mike Tassone

Mike Tassone

Mike Tassone

Mike is a Co-Founder and Chief Operating Officer of Own Up. He has expertise in all areas of residential lending, having led operations for a top 40 lender in the United States.

Updated: Sep 20, 2023

A scale with a bag that says loan on one side and wooden carvings of a house and a car on the other

Unless you’re sitting on a pile of savings (and we mean a pile), you will likely need to take out a home loan or a mortgage from a lender in order to buy a house. But if you’ve never dealt with a mortgage lender before – or if it’s been a while – you may be wondering just how to compare them.

There’s no magic formula to comparing mortgage lenders, but there are some critical steps that are always smart to take. So let’s break them down.

When it comes to shopping for a mortgage, taking the time to compare lenders can pay off in the long run. The terms, interest rates, and fees associated with a mortgage can vary between lenders, which can ultimately impact the total cost of your mortgage.

Here’s how to compare mortgage lenders so you can arrive at the right decision for you.

Research Lenders and Check Their Licensing Status

Before reaching out to lenders, start by researching them online. This can help you gain a sense of their offerings and the types of mortgages they specialize in providing. Look for lenders that are well-established and have positive customer reviews.

One key factor you should remember to check is whether the lenders you are considering have all the required state or federal credentials to originate mortgage loans in your state.

One resource you can use to check the licensing status of a lender is the National Mortgage Licensing System (NMLS). The NMLS is a nationwide database of licensed mortgage lenders and brokers that are registered with state agencies. You can search the NMLS database to find information about a particular lender, including their license status and any disciplinary actions that may have been taken against them. Checking with the NMLS can give you peace of mind that the lender you choose is legitimate and has met the licensing requirements of your state.

It’s also always a good idea to ask the lender directly about their licensing status, as they may be able to provide you with additional information or answer any questions you may have. By doing your due diligence and verifying the licensing status of potential lenders, you can make a more informed decision and feel confident that you are working with a reputable lender.

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Obtain Multiple Quotes (and Negotiate When Possible)

Requesting quotes from multiple potential mortgage lenders is a crucial step in the homebuying process. The Consumer Financial Protection Bureau says it is a good idea to request quotes from at least three lenders. This allows you to compare the rates and terms of several different lenders, which can help you find the best deal. When comparing lenders, be sure to take into account the total cost of the loan that was quoted to you, including both the interest rate and any fees or charges.

When requesting quotes from lenders, it's important to provide the same information to each one. This includes details about the amount you want to borrow, your credit score, and any other relevant details. Providing consistent information to each lender allows you to accurately compare their offers and determine which one is the most favorable.

Once you've reviewed the quotes from each lender, you can use this information to negotiate with them, if necessary. For example, if you've received a quote from one lender with a lower interest rate but higher fees, you can try to negotiate with them to reduce or waive some of the fees. Don't be afraid to ask questions and push for the best possible deal.

Compare Interest Rates

This is usually the most important part of comparing mortgage lenders. Carefully consider the interest rate any lender offers as it can significantly impact your mortgage payments and the overall cost of your loan.

Here are a few factors that may impact your interest rate:

Your Credit Score

A higher credit score often leads to a lower interest rate, as it demonstrates to lenders that you're a low-risk borrower. When you're comparing interest rates, make sure to ask the lender for the annual percentage rate (APR), which is the rate that includes both the interest rate and any fees associated with the loan.

The Loan Term

In addition to your credit score, the loan term can also affect the interest rate. Generally, longer loan terms come with higher interest rates, while shorter terms have lower rates. Consider your financial goals when deciding on a loan term. If you want to pay off your mortgage quickly, a shorter term may be the better option.

The Type of Loan

The type of loan for which you're applying can also impact the interest rate. For example, FHA and VA loans may have lower interest rates than conventional loans, but they can come with additional fees. Make sure to compare the overall cost of each loan option, including interest rates and fees, before making a decision.

When comparing interest rates, you should also consider the types of mortgages available. For example:

  • Fixed-rate mortgages have a stable interest rate for the life of the loan, which can provide peace of mind for those who want to know what their monthly payment will be.
  • Adjustable-rate mortgages have interest rates that fluctuate over time, which can result in lower initial payments but may increase over time, significantly impacting your monthly payment and overall loan cost.

Make sure to carefully consider the pros and cons of each option before making a decision.

Compare Lender Fees

In addition to comparing interest rates, it is essential to consider the fees that different lenders charge. Fees can accumulate quickly, and they can impact the total cost of the mortgage.

To ensure that you are getting the best deal, it is essential to ask each lender for a detailed breakdown of all the fees associated with their loan and compare them against each other. You can use this information to determine which lender offers the most favorable terms, taking into account both interest rates and fees. A lender that offers a lower interest rate but with a high upfront cost may not be the best deal, while a lender with a higher interest rate and low upfront fees may be the better option.

It is important to note that some fees are negotiable, while others are not. Therefore, it is crucial to understand what each fee covers and whether it can be negotiated or waived. To help with the negotiation, you may want to have a good understanding of the common fees for your loan type in your area. This knowledge can give you leverage in your negotiations and help you get better terms.

Consider the Loan Term

When comparing mortgage lenders, it's important to consider the loan term or the length of time you have to repay the loan.

Longer Loan Terms

A longer loan term can result in lower monthly payments, making it more affordable for borrowers and easier for them to fit into their budget. However, a longer loan term also means you'll pay more in interest over time. This is because the interest will accrue over a longer period, resulting in a higher total interest paid on the loan. Therefore, if you can afford higher monthly payments, choosing a shorter loan term can save you money in the long run.

Shorter Loan Terms

A shorter loan term typically means higher monthly payments, but it can also help you save money in interest. Since the loan term is shorter, the interest rate charged on the loan is often lower. This means that you'll pay less interest over the life of the loan. Additionally, a shorter loan term can help you build equity in your home faster, allowing you to pay off your mortgage sooner and own your home outright.

Choosing the Right Term

When considering the loan term, it's essential to factor in your financial situation and long-term goals. If you plan to live in the home for a long time and can afford higher monthly payments, choosing a shorter loan term can be a smart decision. However, if you plan to move in a few years or want to keep your monthly payments more affordable, a longer loan term may be the better option.

Bottom Line

By taking the time to compare mortgage lenders in detail, you can find the best possible deal on your mortgage and save yourself money in the long run. It's important to do your research, obtain multiple quotes, and carefully consider all the factors that can impact the total cost of your loan.

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