The best strategy for choosing a mortgage lender is to get Loan Estimates from 3 to 5 different lenders within the same week. This allows you to compare rates, fees, and terms on the same market conditions and lock in the best deal.
Beyond the interest rate, you need to evaluate the APR, total closing costs, lender fees, service quality, closing speed, and communication. The cheapest lender is not always the best choice if they cannot close on time.
Shopping around is one of the most important things you can do to save money on your mortgage. Even a 0.25% rate difference can save thousands of dollars over the life of the loan.
Shopping Strategy
Apply to 3 to 5 lenders on the same day. The credit bureaus treat multiple mortgage inquiries within a 14-45 day window as a single inquiry, so your credit score is not penalized. Compare online lenders, local banks, credit unions, and mortgage brokers to get a complete picture.
What to Compare
Compare the interest rate, APR, origination fees, discount points, third-party fees, total closing costs, monthly payment, and cash to close. The APR includes both the interest rate and certain fees, giving you a more complete cost comparison. However, the APR calculation can vary between lenders, so compare the detailed fee breakdown.
APR vs Interest Rate
The interest rate is the cost of borrowing the principal. The APR includes the interest rate plus certain fees like origination charges and points. When comparing lenders, the APR gives a more complete picture of total cost, but pay attention to the underlying fees that make up the APR difference.
Service and Communication
Call each lender and see how responsive they are. Ask how long their average closing time is. Ask if they have a dedicated loan officer or processor who will handle your file. A lender who communicates well can prevent closing delays and reduce stress throughout the process.
Timeline Expectations
Ask each lender for their typical closing timeline. Some lenders can close in 21 days, while others take 45 days. If you have a tight closing date, choose a lender with a proven track record of fast closings. Online lenders can have longer timelines because they are less familiar with local title and appraisal requirements.
Making Your Final Decision
Create a simple spreadsheet comparing each lender's rate, APR, total closing costs, monthly payment, and estimated timeline. Weight the factors based on what matters most to you. If the costs are similar, go with the lender who communicated best and has the experience to handle your specific situation.