How To Shop For A Mortgage That’s Right For You

8 Min Read
Updated March 6, 2024
Couple shopping for a mortgage together.
Written By Scott Steinberg

Whether you’re buying a house for the first time, thinking about relocating to a new residence or considering refinancing, there’s no shortage of home loan options or providers to pick from.

Good news: the process doesn’t have to be confusing. With a little upfront research and planning you can find the right mortgage.

So if you’re curious about how to shop for a mortgage, fear not. Let’s take a closer look at tips and tricks you can use to secure the best lenders and rates with our handy, step-by-step guide to mortgage shopping.

How To Shop For Mortgage Lenders And Financing Options

Securing a mortgage loan doesn’t have to be challenging. In fact, with so many potential lending options available, your biggest challenge may be picking the right lender and program.

That said, a home loan remains a large financial commitment for millions of people of all backgrounds and circumstances. It’s often one of the largest investments that you’ll make in your lifetime. Noting this, it pays to do your research before picking a lender and applying for a loan product, to make sure you’re selecting the best fit for your circumstances and budget.

Ready to get started? Following the below steps can help speed you along in your research.

1. Get Your Finances In Order

It’s important to get your personal finances in order, and well-documented, before you start the home loan process. The first things lenders will want to know are whether you can afford a mortgage and how likely you are to pay it back.

As part of the application process, you’ll be required to provide documentation such as pay stubs, bank statements and tax forms that provide proof of employment and earnings.

Lenders will also take a close look at any debt you hold and review your credit score and credit history.

The below checklist may help as you prepare to dive into the mortgage shopping process:

  • Get a credit report: After all, you’ll need to know your credit score as there are minimum requirements to obtain certain types of mortgages. Having a higher credit score may unlock more mortgage opportunities and lenders for you, as well as more favorable interest rates and loan terms.
  • Calculate your DTI ratio: Your debt-to-income (DTI) ratio is expressed in the form of a percentage, and represents the total of your fixed monthly debt obligations (credit cards, student loans, car loans, child support, mortgage payments, etc.) divided by your gross monthly income. It provides lenders with a snapshot of how much money that you potentially have to comfortably spend on housing.
  • Create a house budget: Just because you can qualify to borrow a certain amount of money doesn’t necessarily mean that you should. It’s important to know how much house that you can afford. You need to factor in added homeownership expenses such as maintenance, homeowners insurance and property taxes, along with living expenses. Our house affordability calculator can help.
  • Figure out a down payment amount: You should also determine how much of a down payment that you’ll want to put down on your new property, and how much money that you’ll need to be saving up to afford it. Keep in mind that a larger down payment means a lower monthly payment, access to more loan types, and – if over 20% is put down –avoiding having to pay private mortgage insurance (PMI).

2. Start Researching Loan Products 

As noted, there are many types of home mortgage loans that you can apply for, and many government programs designed to help provide expanded access to homeownership.

For example, you might be shopping for a 15-year or 30-year conventional loan in the form of a fixed-rate mortgage or adjustable-rate mortgage instead. Alternately, you may wish to look into various first-time home buyer programs – many of which offer lower down payments, smaller interest rates and less stringent application terms – such as VA, USDA or FHA loans.

Your credit score, desired location of residence and military (or veteran) status may determine which loan products that you are eligible for.

Whatever the case, it pays to shop around, as there are myriad types of loan products to pick from, each of which is keyed to different homeowners, situations and purposes.

As a quick reference guide, the three most common types of mortgages that you’ll encounter are the fixed-rate mortgage, the adjustable-rate mortgage (ARM) and the Federal Housing Administration loan (FHA).

Differences include:

  • A fixed-rate mortgage is a conventional loan that has a set rate of interest for the term of the loan.
  • An adjustable-rate mortgage (ARM) is a conventional loan with an interest rate that is initially fixed for introductory period – typically 5, 7 or 10 years. After the intro period, that rate changes in relation to the financial markets, usually annually or biannually. The initial rate is often lower than the rate on a fixed-rate mortgage, and the rate may change at any time after the introductory period.
  • A federal housing administration (FHA) loan typically has easier borrowing requirements with a low down payment, lower credit expectations than other loans and flexible qualifying income requirements.

As noted above, there are other, more individual and specialized home mortgage types that you can pick from as well. Specifically:

  • VA loans for active-duty military personnel veterans and their families
  • USDA loans for qualified rural property owners
  • Jumbo loans for mortgages larger than $726,200 (or higher depending on your home’s location)
  • Reverse mortgages, which are a special type of home equity conversion mortgages for homeowners age 62 or older that require no monthly payments

3. Look At Different Types of Lenders

Loans will generally be offered by different types of lending institutions – each of which comes with their own upsides and benefits. Common providers that offer home mortgages include:

  • Banks: Which may offer local and physical branches to pop into and more personalized customer service.
  • Credit unions: Which may offer lower rates, more favorable loan terms, and other benefits in exchange for membership.
  • Online lenders: Firms that can quickly pair you with a competitive range of loan products, though they often don’t maintain a brick-and-mortar presence.
  • Financial technology (“Fintech”) providers: Which often cut costs and fees on loan products thanks to technology-powered efficiencies, but the quality of customer service may vary.

As you go about reviewing your options and contemplating which to work with, you’ll want to consider factors like:

  • Interest rates, loan fees and various service or prepayment charges
  • Types of mortgage and loan products offered, including bundling options
  • Mortgage terms and conditions, including but not limited to proposed loan term length
  • How challenging or complex their mortgage preapproval process is
  • Different methods and quality of customer service and interaction offered

Because you’ll often hear the terms as you go about shopping for a mortgage, it also helps to understand the differences between a lender and a mortgage broker.

Put simply, a financial lender is an institution that loans you money, while a broker is an independent financial professional who acts as a liaison between you and a mortgage lender. In effect, a mortgage broker is someone who can help you connect with and compare offers from multiple lenders.

4. Collect And Compare Mortgage Quotes

Pro tip: Don’t settle for the first home mortgage offer that comes your way. Literally hundreds of loan providers are competing for your business these days, meaning that it pays to shop around.

Be advised: Many lenders will advertise promotional interest rates or list them on their website. Not all of these will carry through to closing, and each lender will charge various loan fees. Assess each prospective loan’s annual percentage rate (APR), since some lenders may offer low mortgage rates but could have high upfront fees and closing costs attached.

Keeping this in mind, as it pays to do your homework. Narrow your search to about 3 – 5 lenders, and compare interest rates, loan types and loan terms from these providers.

Likewise, don’t be afraid to negotiate: If you have a specific provider that you’d like to work with, but have received a competitive offer from another lender, let your preferred financial lender know. They may be willing to match or beat the offer.

5. Get A Verified Preapproval Letter

Once you’ve identified a lender and loan type, it’s a wise idea to submit and finalize your mortgage application, and to get the mortgage information in writing.

You may have heard the terms “preapproval” and “prequalification” thrown about. The difference between being prequalified and preapproved isn’t always easy to follow. For clarity’s sake, under both scenarios, a lender will review your financials and estimate how much mortgage that they believe you can afford.

However, prequalification provides a rough idea of your expected loan amount, while preapproval acts as an actual conditional mortgage commitment for how much that you can expect to borrow. With preapproval, a lender goes more in depth by running a credit check and examining financial statements.

It’s important to obtain a preapproval letter, as it’s a document from a financial lender that states that the lender is open to lending you money in an amount up to a certain limit.

Real estate agents and home sellers like to see borrowers secure this letter, because a preapproval letter implies that you’re creditworthy enough to make a purchase on a home and live up to any financial commitments proposed in an offer.

See What You Qualify For

The Bottom Line: Shopping Around For A Mortgage Can Save You Money

As you can see, learning how to shop for a mortgage isn’t all that complex. It starts with getting your finances in order, researching potential home loan products, and looking at different types of lenders. Having decided which lender and loan to opt for, you can then move on to obtaining a verified preapproval letter and shopping for your new home.

Ready to take the plunge? You can find out next steps by today!

Find A Mortgage Today and Lock In Your Rate!

Get matched with a lender that will work for your financial situation.