There’s no one-size-fits-all formula when it comes to getting approved for a mortgage. Whether it's for your first home or your dream cabin getaway, each lender sets its own eligibility criteria, interest rates and loan options, which means the right lender for one borrower might not be the best fit for another.
As a homebuyer, it’s important to understand your financial situation and loan preferences early on. This will help you find a lender that aligns with your needs, increasing your chances of approval and favorable rates.
To help you navigate the process, here are five key steps to choosing the right mortgage lender.
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Where mortgage interest rates and policy stand now
With the next Federal Open Market Committee (FOMC) meeting scheduled for next week, mortgage shoppers are watching for signals about future rate cuts. The Fed’s most recent move, a 25 basis point cut in September, brought the federal funds rate to a target range of 4.00% to 4.25%.
Mortgage rates have inched lower in response. As of October, the average 30-year fixed mortgage rate is about 6.27%, while the 15-year fixed rate averages around 5.52%, according to Freddie Mac. Though these rates remain higher than the ultra-low levels seen a few years ago, they have begun trending down, creating a slightly more favorable environment for buyers.
Even modest rate shifts can affect how much you qualify to borrow and which lenders offer the best terms. Comparing interest rates, lender fees and loan types side by side can help you lock in the best deal before the next policy move.
1. Figure out your home loan preferences
Your first step in homebuying is figuring out what you can afford. Your monthly mortgage payment will include principal and interest amounts, taxes and insurance. Once you have an idea of what you can afford, think about your mortgage type, as this will impact your payments:
- A 15-year loan vs. a 30-year loan: Most people opt for a 30-year mortgage loan since it means smaller monthly payments over a 30-year repayment term. But if you want to pay off your loan sooner and pay less in interest over the life of your loan, look into a 15-year loan.
- Fixed interest vs. adjustable rate: A fixed interest rate stays the same for the life of the loan, giving you predictable monthly payments. An adjustable-rate mortgage (ARM), on the other hand, typically starts with a lower introductory rate. After a set period, however, the rate adjusts based on market conditions, which means your payments could go up or down. Over time, you might end up paying more than someone with a fixed-rate mortgage.
- Conventional vs. FHA/VA/USDA loans: Conventional loans are the most popular type of loan. They aren’t backed by any government agency, and most banks, credit unions and online lenders offer them. FHA, VA and USDA loans are government-backed mortgages based on specific needs. For instance, if you’re a veteran, you could qualify for a VA loan.
Your preferences and financial situation play a big role in narrowing down the right mortgage lenders. For example, if you're looking for a government-backed loan like an FHA or USDA mortgage, you'll want to focus on lenders who specialize in or are approved to offer those specific programs. These options may not be available through lenders that primarily deal with conventional loans.
Understanding what type of loan you qualify for — and what fits your needs — can help you avoid wasting time on lenders that aren’t a good match.
2. Check your eligibility
Once you’ve eliminated mortgage lenders that don’t fit within your preferences, you can start to review the ones that do. Many banks, credit unions and online lenders offer pre-qualification tools to help you see if you’re likely to qualify for a mortgage.
Pre-qualification is different from preapproval — it doesn’t require a hard credit check and won’t affect your credit score. Instead, you enter basic information such as your estimated credit score, income and assets to get a sense of your eligibility.
Checking your eligibility helps determine which lenders are more likely to give you a mortgage based on your creditworthiness, income and where you want to buy a home. You’ll narrow your list even further by getting rid of lenders that may have eligibility requirements you don’t meet.
Try to explore different lenders beyond large financial institutions. You might be able to find offers at local credit unions, regional banks or online mortgage companies. You might be eligible for offers at places you may not have considered.
Take a look at what your current bank offers. Some have deals for existing customers with other accounts. You may qualify for special savings.
3. Compare lenders
Once you’ve narrowed down your list of potential lenders, it’s time to compare the ones most likely to approve your mortgage. Compare lenders based on interest rates, preferred loan terms, down payment requirements and any extra fees. Those fees could include underwriting, loan origination fees and closing costs.
As you shop around, consider getting preapproved by multiple lenders. While each preapproval involves a hard credit inquiry, credit bureaus recognize that you're rate shopping for a mortgage.
If these inquiries occur within a short window — typically 14 to 45 days — they’re grouped as a single inquiry for scoring purposes. This allows you to explore your options without significantly harming your credit score.
Quickly compares some of today's best mortgage offers with the tool below, powered by Bankrate:
4. Review preapprovals and choose a lender
After receiving a few preapprovals, review which lender offers the highest loan amount. Keep in mind, you’re not obligated to spend up to that limit — but having a higher preapproval can give you more flexibility as you explore different homes and price ranges.
It’s also worth evaluating each lender’s communication style and how they’re compensated. Some lenders work as mortgage brokers, meaning they help match you with a loan and may earn a commission at closing.
Ask each lender if they have any special offers or conditions to lower the overall cost. Find out how much potential monthly payments will be for each lender, including your principal mortgage payment, interest, insurance, taxes, and any other costs — that way, you know what to expect before committing.
Many lenders offer a rate lock option, so it’s important to confirm the details with each one. A rate lock lets you secure the current interest rate for a set period — typically 30 or 60 days — while your loan is finalized. This protects you from potential rate increases between the time you’re approved and the day you close on your home.
5. Complete your loan application
Once you’ve chosen a lender and received your preapproval letter, you’ll be ready to start touring homes. After finding the right property, you’ll complete a formal loan application. This step is similar to preapproval, but it initiates the full underwriting process for your actual mortgage.
This is the loan you’ll carry through the life of your home purchase. If you’ve locked in your interest rate, your monthly payments should align with the estimates you received during preapproval, giving you a clear idea of what to expect financially.
The right lender can help you secure competitive rates and make the homebuying process smoother and less stressful. Take your time, ask questions and don’t be afraid to explore multiple options before committing.
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