How to Compare Mortgage Lenders Before Buying
If you’re planning to buy a home, you’ll probably spend a lot of time looking at houses.
But before you get too attached to one, there’s another decision that deserves your attention: choosing your mortgage lender.
I know it’s easy to think, “A mortgage is a mortgage. I’ll just use whoever gives me the lowest rate.”
It’s not quite that simple.
The lender you choose can affect your interest rate, closing costs, monthly payment, loan options, and how smoothly things go once you’re under contract.
So how do you compare mortgage lenders before buying?
Start by talking with two or three lenders, give them the same information, and compare the entire loan instead of focusing on one number.
Here’s what I’d look at.
1. Talk to More Than One Lender
You don’t have to interview ten mortgage lenders.
Two or three is usually enough to give you a useful comparison.
You might talk with:
A local bank
A credit union
A mortgage broker
An online mortgage lender
A lender recommended by your Realtor®
There’s nothing wrong with getting a recommendation. In fact, a good referral can save you time.
But you should still have a conversation with the lender yourself.
You’re the person who will be making the mortgage payment.
You need to feel comfortable with the person handling your loan.
2. Give Every Lender the Same Information
This sounds simple, but it makes a big difference.
If you ask one lender about a $400,000 purchase with 10% down and another lender about a $425,000 purchase with 20% down, you aren't really comparing the lenders.
You're comparing two completely different scenarios.
Give each lender the same basic information:
Approximate purchase price
Down payment
Type of loan you're considering
Approximate credit information
Expected timeframe
Property type, if known
Then ask each lender to explain the numbers.
Now you have something useful to compare.
3. Look Beyond the Interest Rate
This is probably the biggest thing I’d tell a buyer.
Don’t choose a mortgage lender based only on the interest rate.
A lower rate can look great at first.
But what does it cost you to get that rate?
Ask about:
APR
Origination fees
Discount points
Lender credits
Processing fees
Underwriting fees
Estimated closing costs
Estimated cash needed at closing
You want to know what the mortgage actually costs you.
A lender with the lowest advertised rate isn't necessarily offering the lowest overall cost.
4. Ask About the Monthly Payment
The mortgage payment isn't just principal and interest.
Depending on the property and loan, your monthly housing expense may also include things such as:
Property taxes
Homeowners insurance
Mortgage insurance
HOA dues, when applicable
Ask the lender to give you a realistic estimate of your total monthly payment.
This is especially helpful when you're setting your home-buying budget.
You may qualify for a certain purchase price, but that doesn't automatically mean you’ll be comfortable making that payment every month.
There’s a difference between what you can qualify for and what you actually want to spend.
5. Ask About Different Loan Options
Don't be afraid to ask, “Are there other loan options I should consider?”
Depending on your circumstances, you may encounter conventional, FHA, VA, USDA, fixed-rate, or adjustable-rate options.
You don't need to become a mortgage expert.
That's what your lender is there for.
Ask them to explain:
Why they're recommending a particular loan
How much you'll need to put down
What the monthly payment would be
Whether mortgage insurance applies
What your upfront costs would be
How the loan fits your plans
If the explanation gets too technical, stop them.
Say, “Can you explain that in simpler terms?”
You should understand the loan you're signing up for.
6. Compare the Cash You Need at Closing
This one can catch buyers off guard.
You may know how much you want to put down, but that's not necessarily the entire amount you'll need to bring to closing.
There can be other closing costs and prepaid expenses.
Ask every lender:
“Based on this scenario, approximately how much cash would I need to close?”
Then ask them to explain what's included.
This gives you a much clearer picture of the money you'll actually need.
7. Pay Attention to How They Communicate
This might sound like a small thing.
It isn't.
Buying a home can move quickly, especially once you find a property you want.
You may have questions about your preapproval. You may need updated numbers. Your offer may change. Your closing date may change.
You don't want to spend the entire transaction wondering whether your lender received your message.
Before choosing someone, ask:
“How do you normally communicate with your clients?”
And:
“How quickly can I usually expect a response?”
Then notice how they communicate with you now.
If you're having trouble getting answers before you're a client, that's worth thinking about.
8. Ask About the Preapproval Process
A preapproval can help you understand your buying range before you start making offers.
It also gives you a better idea of what the lender will need from you.
Ask:
What documents do you need?
How long does the process take?
Who will I work with?
How long is the preapproval valid?
What could cause the approval amount to change?
How quickly can you update the letter if I need it for an offer?
The goal isn't just to get a piece of paper saying you're approved.
You want to understand what you're approved for and what still needs to happen.
9. Ask How They Handle Rate Locks
Mortgage rates can change, so ask the lender how rate locks work.
You can ask:
When can I lock my rate?
How long does the lock last?
Is there a fee?
What happens if my closing gets delayed?
What happens if rates go down after I lock?
Don't assume the answer is the same with every lender.
Get the details directly from the person handling your loan.
10. Find Out Who Will Actually Handle Your Loan
This is another question buyers don't always think to ask.
You might speak with one person when you're shopping for a lender, but several people may be involved once your loan is underway.
Ask:
“Who will be my main contact once I'm under contract?”
You can also ask who handles processing and underwriting.
You don't need to know every person's name.
You just want to understand how the process works and who you should contact when you have a question.
11. Consider Whether They Understand Your Home Purchase
Every home purchase is a little different.
Maybe you're buying a condominium.
Maybe you're looking at new construction.
Maybe you're considering a property with unique financing considerations.
Ask your lender whether they regularly work with the type of property you're considering.
This can be particularly helpful when you're buying in an area like Ann Arbor, where buyers may be looking at different types of homes and properties.
Experience with your type of transaction can be worth considering alongside the numbers.
12. Ask How the Lender Will Help You Get to Closing
Once you have an accepted offer, the mortgage process really gets moving.
This is when you want to know that your lender has a clear process and will stay on top of the details.
Ask questions like:
What happens after my offer is accepted?
What documents will you need from me?
When will the appraisal be ordered?
When does underwriting begin?
How will you keep me updated?
What could potentially delay my closing?
Who should I contact if I have a question?
How far in advance will I know if something needs attention?
You don't need a lender who promises that everything will go perfectly. No one can guarantee that.
You want someone who communicates clearly, explains what is happening, and lets you know when you need to take action.
That can make a big difference when you're trying to get from an accepted offer to the closing table.
What If One Lender Has a Lower Rate?
Go back and ask questions.
For example:
“Your rate is lower than the other lender's. What are the fees associated with that rate?”
Or:
“Can you show me what my costs would be if I chose a slightly different rate?”
You don't have to be an expert to ask good questions.
A good lender should be comfortable explaining the tradeoffs.
Don't Forget About the Overall Home-Buying Process
Your mortgage doesn't exist separately from your purchase.
Once you make an offer, there are deadlines.
There are inspections, appraisals, title work, underwriting, financing requirements, and a closing date.
That's why I encourage buyers to get their financing lined up before they fall in love with a house.
When your Realtor and lender communicate well, you have a much better understanding of what needs to happen and when.
As a Realtor® serving buyers in Ann Arbor, Michigan, I want my clients to feel comfortable with the professionals on their team. That includes the lender.
Common Mistakes Buyers Make When Comparing Lenders
They choose the first lender they speak with.
Convenient doesn't always mean best fit.
They chase the lowest rate.
The lowest rate doesn't tell you the complete cost of the loan.
They don't ask about fees.
If you don't understand a fee, ask.
They compare different loan scenarios.
Make sure you're comparing similar loans and purchase assumptions.
They wait until they're ready to make an offer.
By then, you're under pressure.
It's much easier to compare lenders before you find the house.
They don't pay attention to communication.
A lender who is difficult to reach can make an already complicated process more stressful.
A Simple Rule to Remember
When comparing mortgage lenders, ask yourself three things:
Do I understand the loan?
Do the numbers make sense for my budget?
Do I trust this lender to communicate with me throughout the purchase?
If the answer to all three is yes, you're in a much better position to make your decision.
You don't need to find the “perfect” lender.
You need to find a lender whose loan terms fit your situation and whose service gives you confidence moving forward.
Frequently Asked Questions
Should I compare mortgage lenders before buying a house?
Yes. Comparing lenders before you start making offers gives you time to understand your financing and choose a loan that fits your situation.
How many mortgage lenders should I compare?
Two or three lenders can give you a useful comparison without making the process unnecessarily complicated.
What is more important, the interest rate or closing costs?
You should consider both. A lower rate may come with higher upfront costs, so look at the overall cost of the loan.
Should I use the lender recommended by my Realtor?
A Realtor may have lenders they know and trust, but the final decision is yours. You're always free to compare that recommendation with other lenders.
What questions should I ask a mortgage lender?
Ask about the interest rate, APR, loan type, fees, cash needed to close, monthly payment, rate lock, preapproval process, communication, and expected timeline.
Final Thoughts
Buying a home is a big decision.
You don't have to figure everything out at once.
Start with two or three lenders. Give each one the same information. Ask the same questions. Then compare the complete picture.
And remember, the lowest rate isn't always the best choice.
You want financing that makes sense for your budget and a lender who will communicate clearly throughout the transaction.
If you're preparing to buy a home in Ann Arbor, Michigan, I'm happy to help you think through the home-buying process and the questions you should be asking your mortgage lender.
About the Author
Nancy Arnold, Realtor®
The Charles Reinhart Company
2275 W. Stadium Ann Arbor, MI 48103
[email protected]
734-260-3505
