7 tips for finding the best mortgage lender

Finding the best interest rate starts with finding the best lender for your financial situation. Learn about the pros and cons of various lenders and how to find the best mortgage lender for you.

At a glance:

• Prioritize researching lender options and rates to find what’s best for you

• Evaluate which type of mortgage lender is right for you

• Ask friends and family for recommendations to get the best deal

• Avoid shiny object syndrome

• Consider a mortgage broker if you’re willing to spend to save time

• Scrutinize the reputation and qualifications of potential lenders and brokers

• Lock in a great interest rate with best practices for borrowers

First things first

1. Prioritize researching lender options and rates to find what’s best for you.

A mortgage lender provides a loan to finance the purchase of a home. The lender will evaluate your financial circumstance and “your ability to repay” to determine if you meet their underwriting standards, then provide a variety of loan options with varying interest rates and terms.

One of the primary goals for buyers is to find the lowest interest rate and the best loan terms. Locking in a low interest rate is critical, but your choice of lender hugely impacts your mortgage experience.

What’s so important about interest rates? Well, the difference in savings between a 0.5% and 1.0% interest rate is significant. For example, imagine you’re considering a $250,000 loan with a 30-year fixed rate mortgage. A 1% difference in interest rate could cost you an extra $53,466 in interest payments over the course of the loan!

The Consumer Financial Protection Bureau (CFPB) reports that nearly half of consumers don’t shop around before selecting their mortgage. Since half a percentage point over your loan term can result in thousands of additional dollars in interest paid, it’s critical to seek out the best deal.

Once you know you can get approved, it’s time to decide who you want to borrow with – and who will save you money. Once you know it’s time to get a mortgage loan, it’s time to decide which lender you want to borrow from, and which ones will save you money.

2. Evaluate which type of mortgage lender is right for you

Between local banks, retail banks, credit unions, and online mortgage lenders – borrowers have more options than ever. When researching loan options, take notes and stay patient.

Now let’s look at available lender types.

Local banks

Smaller mortgage lenders often times offer the same array of loans as larger banks. You’ll also enjoy a more familiar, one-to-one experience. Local loan underwriters will remain your point of contact throughout the lending process.

The pros of financing through a local bank:

• As decisions are made in-house at local banks, they have the ability to expedite loan approvals. If you’re in a hurry to close, this is very helpful.

• More accessible lending experience because you’re nearby. Expect individual attention and personalized assistance on qualifying for a loan rate.

• Smaller lenders can be less rigid than larger banks in terms of the minimum criteria they require to qualify for a loan as they follow different regulatory guidelines. Borrowers who’ve been rejected by a big bank due to income or credit issues might have better chances with a smaller local lender.

The cons of financing through a local bank:

• Sometimes there can be fewer loan options due to less administrative resources.

• Smaller, local banks also might not have tools like apps and online resources that can make the process of applying for and managing a mortgage more convenient.

Big banks

National banks have written millions of mortgages throughout the years, so you can be more confident that you’re dealing with a credible institution that can offer a competitive interest rate.

The biggest trade off between big and small banks is in service. Rather than dropping into a branch to file paperwork, your mortgage application can be processed and your account managed entirely online.

The pros of financing through a big bank:

• Additional savings may be available as big banks have access to cheaper capital and can bundle account services, such as savings, checking, and financial planning.

• Often there are more varieties of mortgage options available.

• Offer industry-standard interest rates with flexibility for well-qualified applicants.

The cons of financing through a big bank:

• Big banks process many loan applications per week, meaning it can take days to hear back about your application. Given all the moving parts, closing a mortgage with a big bank can take up to 45 days.

• Credit requirements could be stricter with a larger financial institution. Little flexibility for writing loans for applicants with less than great credit.

Online

Online mortgage lenders can offer both convenience and lower mortgage rates and fees. Lacking the costs associated with a physical location, these lenders are able to “pass on the savings.”

While savings are appealing, online mortgage lenders lack the in-person support many home buyers crave. However, if you’re savvy and unfazed by working through fine print on your own, an online mortgage can be a terrific option.

That said, remember to beware of “too-good-to-be-true” offers from dubious online lenders. We’ll discuss how to vet your lenders in a later section.

The pros of financing through an online lender:

• May offer lower interest rates and fees that save thousands over the loan term.

• Faster application process means you can be approved for a home loan within days.

• Similar to local lenders, online lenders might be more willing to approve applicants with imperfect credit or unusual financial circumstances.

The cons of financing through an online lender:

• Risk of user error is high when filling out forms from home, and application mishaps can be costly or result in a loan denial.

• Scams featuring low-interest rates and prepayment discounts are prevalent, so be sure to vet any lender before applying.

• Lack of in-person customer service can be frustrating when faced with application questions.

Credit unions

Credit unions have long offered lower mortgage rates than commercial lenders, but only for highly qualified applicants. Often more conservative in their lending practices, these institutions also require that applicants meet their membership requirements.

Credit unions are able to offer lower mortgage rates because they keep loans in their own portfolio rather than sell them.

Typically, credit unions require you be part of a certain group, for example:

• U.S. service men and women

• Church members

• Homeowners Association (HOA) members

• School employees or enrollees

• Live in specific geographic area

Pros:

• Personalized service

• Lower interest rates and fees

• Faster closings than bigger lenders

Cons:

• Limited availability to borrowers

• Fewer loan options

3. Ask friends and family for recommendations to get the best deal

Sometimes, the easiest way to find a great mortgage lender is to solicit referrals from your friends and family. Be specific when asking about who they used and exactly what terms of service they received. If your financial situation is similar to theirs, you could use that information to negotiate similar terms for yourself.

Finding a lender that listens and is willing to work with you is critical. In competitive markets especially, working cooperatively with a lender ensures you can close on the best houses faster than other buyers. It is the lender who approves any inspections for pest and structural work to keep your deal moving forward.

A trusted lender is a huge asset for finding the right home, loan terms and enjoying a seamless home buying experience.

4. Avoid shiny object syndrome

When comparing mortgage rates online, remember the truism:

If it looks too good to be true, it probably is.

Often the “headline” interest rates, the “as low as” rates you see marketed online, are intentionally enticing. Typically, sites that show these rates generate leads for lenders who will actually offer you a different rate after they’ve had a chance to learn about your financial background.

Regardless of what you see, your interest rate and terms will be determined by your credit score and financial situation. If you’ve had credit issues in the past, and you see an online offer at a very low rate, read the fine print and continue shopping to see if credible lending sources will offer you a similar rate.

5. Consider a mortgage broker if you’re willing to spend to save time

Mortgage brokers act as middlemen between borrowers and lenders.

The broker will ask your about your financial background and then help you determine your ideal loan type before submitting an application to lenders. Often times, the broker gets paid by the lender if the loan succeeds.

Working with a mortgage brokers can save you time and energy around working through the fine print and submitting applications.

If you don’t fancy doing mortgage research and don’t mind paying a fee, a mortgage broker can help. According to NerdWallet, the average fee a broker charges is about 0.5% to 2.75% of the financed amount. For example, if you’re borrowing a home for $400,000, you can expect to pay the broker $2,000-$11,000.

Pro tip: As you would with lenders, it’s generally a good idea to vet any potential brokers before choosing one. While some may act as great advisors, others are simply serve to connect you with lenders. Try looking for a broker whose level of support aligns best with your needs.

6. Scrutinize the reputation and qualifications of potential lenders and brokers

Vetting is a necessary step in the borrowing process. Safeguard yourself against predatory lending by performing a few safety checks:

• Visit the Nationwide Multistate Licensing System Registry to ensure your lender is licensed and in good standing in your state

• Check the Better Business Bureau to see how the lender responds to complaints

• Vet any mortgage brokers against the National Association of Mortgage Brokers

Adding this process into your mortgage homework helps ensure you’re dealing with trusted lending sources.

7. Lock in a great interest rate with best practices for borrowers

When it’s time to apply for your loan, arrive prepared to negotiate the best deal. Be ready to leverage competitors’ rates and ask tough questions, as this helps ensure you’re receiving the best loan terms.

Remember, even a quarter or a half a percent in interest comes out to thousands over a loan.

→ Read our primer on how interest rates impact home ownership

Ways to you can lock in a great interest rate:

• Compare rates to determine which lenders are offering the best deal on interest rates and closing fees.

• Before meeting with a lender, check their online quote first. Understand the terms of their online offer and compare it to what they tell you in-person, potentially using it as leverage.

• Arrive at negotiations educated and be clear that you demand a good rate and excellent service. Ask questions like:

  • How long will it take you to communicate and how do you prefer to stay in touch?

  • How fast will you turn around applications for pre-approval, appraisals, and closing?

  • What lenders fees should you expect at closing?

  • Will you roll these fees into the mortgage or waive them completely?

  • What down payment requirements exist?

The More Prepared You Are, The Better Loan Experience.

Finding a mortgage lender is more than just finding a great interest rate and loan terms. While a bit of homework can save you hundreds of thousands, you’re also evaluating lenders by the experience they provide.

Since lenders steer the approval, underwriting, and appraisal process, a lender that’s aligned with your needs and goals is essential to locking in your perfect home and a great interest rate.

Be exhaustive when researching small and large banks, credit unions and online lenders. Assemble your research before approaching your top mortgage lenders, and be sure to follow up with referrals and trusted lender sources.

This article is meant for informational purposes only and is not intended to be construed as financial, tax, legal, or insurance advice. Opendoor always encourages you to reach out to an advisor regarding your own situation.

Related guides and blogs

→ Think you’re ready to buy a house? Here are 4 signs

→ How much does it cost to buy a house

→ Navigating a buyer’s market vs. seller’s market

→ Who pays real estate agent commission fees

Further reading