How to Choose the Right Mortgage Lender When Buying a Home

When preparing to buy a home, most buyers spend a great deal of time thinking about neighborhoods, home prices, property taxes, and what features they want in their new home. One decision that sometimes receives far less attention is to choose the right mortgage lender or loan professional.

That decision can have a significant impact on your home purchase.

The right mortgage lender isn't necessarily the company advertising the lowest interest rate. A good mortgage professional should help you understand your financing options, accurately estimate your costs, communicate clearly, meet important deadlines, and be available when you need them.

Here are some things I recommend home buyers consider when choosing a lender.

1. Don't Choose a Mortgage Lender Based on the Interest Rate Alone

Naturally, the interest rate matters. Even a relatively small difference in rate can affect your monthly payment and the total amount of interest you pay over the life of the loan.

But the advertised rate doesn't tell the entire story.

When comparing lenders, ask about:

• Interest rate

• APR

• Origination charges and lender fees

• Discount points

• Available lender credits

• Mortgage insurance, if applicable

• Estimated closing costs

• Rate-lock terms

• Prepayment penalties, if any

One lender could quote a lower interest rate but require you to pay thousands of dollars in points or additional fees to obtain it.

Instead of simply asking, "What's your rate?", ask the lender to explain what it will actually cost to obtain that rate.

2. Talk to More Than One Lender

There is nothing wrong with comparing lenders.

In fact, I generally encourage buyers to speak with two or three reputable mortgage professionals before deciding whom they want to use.

This provides an opportunity to compare rates and costs, but it also allows you to compare something equally important: the people themselves.

Does the lender explain things clearly?

Do they return calls and emails promptly?

Do they ask questions about your goals?

Are they willing to explain different loan options?

Do you feel comfortable asking questions?

You're potentially going to communicate with this person frequently during one of the largest financial transactions of your life. You want someone you trust and can reach when something important happens.

3. Ask About Different Loan Options

A good mortgage professional shouldn't simply tell you what loan to get.

They should be able to explain your options and help you understand the advantages and disadvantages of each.

Depending on your circumstances, those options might include:

• Conventional financing

• FHA financing

• VA financing for eligible borrowers

• Adjustable-rate mortgages

• Jumbo loans

• First-time buyer programs

• Down-payment assistance programs

• Different down-payment amounts

• Temporary or permanent interest-rate buydowns

For example, putting 20% down isn't automatically the best decision for every buyer. A buyer might prefer to put less down and maintain additional cash reserves for renovations, emergencies, investments, or other expenses.

A good lender can show you the numbers so you can make an informed decision.

4. Get Fully Pre-Approved Before You Start Seriously Shopping

There's an important difference between casually discussing affordability with a lender and obtaining a meaningful mortgage pre-approval.

Before you become serious about making offers, your lender should review your financial situation and tell you what documentation will be required.

Depending on the loan, that can include income documentation, employment information, assets, debts, credit history, and other financial information.

The goal isn't simply to obtain a letter saying you're pre-approved.

It's to identify potential financing issues before you've found the home you want to purchase.

Discovering a problem before making an offer gives you time to address it. Discovering the same problem a week before closing can be considerably more stressful.

5. Make Sure Your Lender Understands Your Local Market

Real estate transactions can vary significantly from one market to another.

For buyers purchasing a condominium in Chicago, for example, the lender may need to evaluate not only the buyer but also aspects of the condominium association and building.

Association finances, insurance, litigation, owner occupancy, special assessments, reserves, deferred maintenance, and other building-related issues can potentially affect financing.

A mortgage professional who regularly works with the type of property you're buying may be better prepared to identify potential issues early in the transaction.

6. Availability Matters More Than Buyers Sometimes Realize

Imagine finding the perfect home on Saturday afternoon.

There are multiple interested buyers, and the seller is requesting offers by Sunday evening.

You want to adjust your financing scenario and need an updated pre-approval letter.

Can you reach your lender?

Real estate doesn't operate exclusively between 9 a.m. and 5 p.m. Monday through Friday. Offers are frequently written during evenings and weekends.

That doesn't mean your lender needs to be available every minute of every day. But you should understand how they handle time-sensitive situations outside normal business hours.

Ask before you need them.

7. Ask Your Realtor About Their Experience With Local Lenders

Your Realtor can be a useful resource when evaluating lenders.

An experienced Realtor has likely worked with many mortgage professionals and has seen firsthand which lenders communicate well, anticipate problems, meet deadlines, and successfully get transactions to the closing table.

Your Realtor may be able to provide the names of several mortgage professionals they've had positive experiences with.

However, the lender you choose is ultimately your decision.

You should feel free to interview lenders, compare their costs and financing options, and select the professional you believe is the best fit.

8. Consider How the Lender Could Affect Your Offer

This is an aspect of lender selection that many buyers don't consider.

In a competitive real estate market, sellers and their Realtors don't necessarily look only at the purchase price.

They may also evaluate the likelihood that each offer will successfully close.

A strong pre-approval from a lender who has thoroughly reviewed the buyer's qualifications can provide additional confidence.

When appropriate, a proactive lender may also be willing to speak with the listing agent and confirm the strength of the buyer's financing without disclosing confidential financial information.

That can become particularly valuable when competing against several other offers.

9. Ask About the Lender's Closing Process

Before choosing a lender, ask:

How quickly can you typically close?

When does underwriting begin?

Who will be my primary contact after I apply?

How will I receive updates?

How quickly are appraisals ordered?

What happens if an appraisal comes in below the purchase price?

How early do you typically issue final loan approval?

The answers can tell you a lot about how organized the lender is.

A great rate isn't particularly valuable if the lender can't meet the financing deadlines contained in your purchase contract.

10. Pay Attention to How You're Treated Before You're a Client

One of the simplest ways to evaluate a lender is to observe their behavior during your initial conversations.

If it takes several days to receive a response while they're trying to earn your business, communication probably isn't going to improve once you're under contract.

The best mortgage professionals tend to be educators as much as salespeople.

They should be willing to answer questions, explain terminology, run different scenarios, and make sure you understand the financial commitment you're considering.

The Bottom Line

Choosing a mortgage lender shouldn't simply be a search for the lowest advertised interest rate.

You're selecting one of the key professionals responsible for getting you from an accepted offer to a successful closing.

Compare rates and fees, but also compare experience, communication, availability, loan options, local knowledge, and reliability.

Your Realtor, lender, attorney, inspector, and other professionals all play different roles during the transaction. When those professionals communicate well and work together, the home-buying process can become considerably easier.

If you're thinking about buying a home and aren't sure where to begin with financing, your Realtor can help you understand the process, discuss questions you should be asking, and provide referrals to mortgage professionals they've had successful experiences working with.