Own Up
How it worksAbout

Learning Center

The know-how you need to navigate home financing.

Explore our learning center

Affordability Calculator

Learn how much home you can afford, and the next steps to take in the process.

Affordability calculator

Rate Range Finder

Get the range of rates for your borrowing scenario across thousands of lenders.

Find your rate range

For Realtors

Learn how Own Up can save your clients time and money.

Learn more


Shopping for a Mortgage? Start Here.

Written by:  

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.

See full bio

Fact Checked by:  

Patrick Boyaggi

Patrick Boyaggi

Patrick Boyaggi

CEO an Co-Founder

Patrick is the Co-Founder and CEO of Own Up. He has a wealth of experience and knowledge as a mortgage executive.

See full bio

A man sitting in front of a computer screen, possibly mortgage shopping, while holding a baby in his lap

Before you even start shopping for a mortgage, there are at least five critical tasks you need to complete:

  1. Know your budget.
  2. Check your credit score.
  3. Research different types of mortgage loans.
  4. Gather necessary documents.
  5. Do your research and compare multiple lenders.

Know Your Budget

First things first, you've got to know your budget. This is the foundation of your mortgage shopping experience. You need to determine how much you can afford to pay each month and stick to it like glue. It's just like grocery shopping with a list - if you don't have a budget and a list of needs vs. wants, you'll end up with a cart full of junk food and an empty bank account.

Determining your budget for a mortgage involves considering your income, expenses, debts, and credit score. Here are three steps you can follow to determine your budget:

  1. Calculate your monthly income. Make a list of your monthly gross income from all sources, including your salary, bonuses, and any other sources of income.
  2. Identify your monthly expenses. Make a list of all your monthly expenses, including housing, transportation, food, utilities, insurance, entertainment, and other debts.
  3. Subtract expenses from total income. Subtract your monthly expenses from your monthly income to get an estimate of your disposable income. Determine the maximum mortgage payment: Most lenders recommend that your mortgage payment not exceed 30% of your monthly income.

Other Considerations: The 28/36 Rule

Another way to determine how much money you have available for monthly housing expenses, is by using the 28/36 rule. Simply stated, you should not spend more than 28% of your monthly income before taxes on expenses related to housing. Also, you should make sure your household debt, including your new mortgage, is no more than 36% of your monthly pre-tax income. Please remember that we’re not just talking about rent or money spent on mortgage payments. Budgeting for housing-related expenses means potentially paying for all of the following:

  1. Mortgage principal and interest payments
  2. Property taxes
  3. Homeowners’ insurance
  4. Maintenance costs
  5. Utility bills
  6. Private mortgage Insurance (if you are required to purchase it)
  7. HOA dues (when applicable to your property)
  8. Money spent on household items like furniture and appliances

By following these guidelines, you can determine your budget for a mortgage and make sure you're not over-extending yourself.

See What You Qualify For

Check Your Credit Score

A crucial step in learning how to compare mortgage loan estimates is understanding the role of your credit score. Your credit score can significantly impact the mortgage rates and terms for which you qualify. To develop a clear understanding of your credit standing, obtain a copy of your credit report from one of the three major credit bureaus:

Review your credit report carefully for any discrepancies, errors, or negative items that could be impacting your score. If you find any inaccuracies, take the necessary steps to dispute and resolve them, as this can improve your credit score. Furthermore, focus on maintaining good credit habits:

  • Pay your bills on time.
  • Keep your credit utilization low.
  • Avoid opening too many new credit accounts.

All of these will help boost your credit score over time, and by monitoring and improving your credit score, you'll be in a better position to compare mortgage loan estimates and secure favorable mortgage rates and terms, saving you money.

Research Different Types of Mortgage Loans

A key aspect of learning how to compare mortgage loan estimates is gaining a thorough understanding of the types of mortgage loans available. Familiarizing yourself with the differences will help you determine which option is best for your financial situation and goals.

  1. Fixed-rate mortgages: The interest rate remains constant throughout the loan term, making this loan type ideal for borrowers who prefer a predictable and stable monthly payment plan and who plan to stay in their home for an extended period of time.
  2. Adjustable-rate mortgages (ARMs): The interest rate can change with the market, so while ARMs often start with a lower initial rate compared to fixed-rate mortgages, this can increase or decrease over time, making these loans better for borrowers who anticipate future income growth or plan to sell or refinance their home sooner.
  3. Conventional mortgages: Because these are not backed by a government agency, they typically require a higher credit score and a larger down payment. Rates can be fixed or adjustable.
  4. Government-backed mortgages: Insured by government agencies, such as the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), or the United States Department of Agriculture (USDA), government-backed loans typically have more flexible credit and down payment requirements.

When conducting your home loan comparison, carefully weigh the pros and cons of each loan type in relation to your financial situation and goals. Understanding different mortgage options will prepare you to compare mortgage loan estimates, so you can choose the best loan for you.

Gather Necessary Documents

As you delve into the process of learning how to compare mortgage loan estimates, it's essential to have all the necessary documentation that lenders require to assess your eligibility. Getting your financial documents together ahead of time will streamline your mortgage application process, ensuring a smoother experience when requesting and comparing loan estimates from lenders.

Key financial documents you'll need include:

  • Pay stubs: Have your most recent pay stubs to provide proof of your current income, as lenders use this information to determine your ability to make payments.
  • Tax returns: Get copies of your federal tax returns for the past two years, including all schedules and attachments, so lenders can evaluate your income history and stability.
  • W-2s & 1099s: Collect your W-2s (for salaried employees) or 1099s (for self-employed individuals or contractors) from the past two years to further verify your income history.
  • Bank statements: Prepare copies of your bank statements for the last three months, so lenders can assess your financial health, including your assets, available funds for a down payment, and ability to cover closing costs.
  • Credit report: Lenders will pull your credit report independently, but you should also check your report for accuracy and address any discrepancies or issues.
  • Additional documents: Lenders may also require proof of rental payments, divorce decrees, gift letters for down payment assistance, or other documents.

The point is to be prepared!

Organizing and assembling these documents in advance will expedite the mortgage application process and put you in a better position to compare mortgage loan estimates accurately. With a comprehensive understanding of your financial situation, you can better evaluate loan offers from various lenders and make informed decisions.

Do Your Research and Compare Multiple Lenders

A crucial aspect of finding the best mortgage loan is to compare estimates from various lenders, including banks, credit unions, and online providers. This will allow you to evaluate mortgage rates and terms, ultimately helping you find the most competitive offers.

To optimize your mortgage comparison process, follow these steps:

  1. Create a list of reputable lenders in your area and well-regarded online mortgage providers. Include a mix of national banks, local banks, credit unions, and non-bank lenders for a comprehensive comparison.
  2. Request loan estimates from each lender on your list. Provide your financial documentation and personal information, so the lender can give you a quote based on your specific circumstances.
  3. Review the loan estimates, comparing interest rates, annual percentage rates (APRs), points, fees, and other costs. Remember, the APR is a more accurate representation of the total cost of the loan, as it includes the interest rate and any other fees and charges.
  4. Compare loan terms, features, and special incentives or programs offered by each lender. Some lenders may offer discounts, credits, or reduced fees for certain borrowers, which could impact your total mortgage costs.
  5. Ask the lenders questions regarding any terms or conditions you don't understand. This will help you make a more informed decision when comparing loan estimates.

In addition to comparing lenders, conduct thorough research. To research while shopping for a mortgage, you can follow these steps:

  1. Gathering information on the current mortgage market and interest rates from mortgage comparison sites, the Federal Reserve, or a local bank.
  2. Look for lenders specializing in your specific needs, such as a low credit score or a particular type of mortgage.
  3. Read reviews from other borrowers who have taken out a mortgage from the lender you're considering to gauge their reputation, customer service, and overall experience.
  4. Reach out to friends or family members who have taken out a mortgage for valuable insights and personal recommendations.
  5. Check for hidden fees or charges associated with the mortgage, and ensure you understand all terms and conditions before signing.

Please note: You may be tempted to rush through the research step to get to the more fun process of house hunting: going to open houses, touring houses on the market, etc. It’s important to remember the time it takes many buyers, especially first-time buyers, to find a house that is worthy of an offer. In fact, so much time may pass between your initial research and when you want to make an offer, that interest rates may have changed quite a bit by the time you are ready to buy.

Home-buying research needs to be a somewhat repetitive process. Make sure you are reviewing the steps outlined above as many times as necessary to remain fresh in the market. Check interest rates daily, as these tend to ebb and flow and can increase or decrease depending on a variety of economic factors and trends.

Finally, if you find the market has changed enough that buying a house may no longer be possible for you, don’t get discouraged and don’t give up. Instead, keep checking, as you may find that optimal market conditions have returned, even after only a very short time.

By following all these steps, you can gain a strong understanding of the mortgage market, available lenders, and their offerings, empowering you to make an informed decision when shopping for a mortgage.

What’s next?

So, you've found the perfect mortgage for you, congratulations! But make sure you understand all the terms and conditions before signing. It's like reading the nutrition label on your favorite snack – you want to make sure there aren't any hidden ingredients that will ruin your day.

Remember: Rates can change until the rate is locked.

Also, don't be afraid to ask for help. Whether it's from a trusted friend or a financial advisor, getting a second opinion can be incredibly helpful. It's like having a shopping buddy – they can offer their own expertise and point out things you may have missed.

Bottom Line

Shopping for a mortgage doesn't have to be a daunting task. With a bit of optimism, some helpful advice, and smart decision making, you'll be on your way to finding the perfect mortgage for you.

See What You Qualify For

See What You Qualify For


© RateGravity Inc. DBA Own Up. All rights reserved. 2012-2024
NMLS: #1450805 · NMLS Consumer Access

The information provided to you in Own Up blog is intended to be for general informational and educational purposes only and does not constitute legal or tax advice. This blog is not a substitute for obtaining legal or tax advice from a qualified professional. The views and opinions expressed on this blog are solely those of the authors and do not necessarily reflect the official policy or position of Own Up or describe Own Up's business model. Own Up makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.