How to Shop for a Mortgage

It takes some time, but could save you thousands in loan payments

Happy couple with laptop spending time together at home
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Chances are, you wouldn’t buy an airline ticket without looking at a few websites to see if you could find a better deal. Yet when it comes to getting a mortgage loan, most consumers may not bother shopping around.

But according to recent research from Freddie Mac, the average borrower could save about $1,500 just by getting one extra quote. If they got five quotes? The savings would jump to almost $3,000 over the life of the loan.

Another study from the Consumer Financial Protection Bureau (CFPB) shows that shopping around could save buyers more than $340 per year, or over $10,000 by the end of a 30-year mortgage.

The reason is simple: Mortgage lenders vary greatly. As the rate exploration tool on the CFPB’s page shows, different lenders can have very different rates and terms—even for consumers with the very same down payment, credit score, and home price. In the state of Alabama, for example, the same borrower could receive a loan rate between 3.65% and 5% on a 30-year fixed mortgage, depending on which lender they use.

But how exactly do you shop around? Just follow these steps.

Step 1: Know Your Credit Scenario

Your credit will play a significant role in the mortgage process. Not only will it impact the interest rate you qualify for, but it will also influence what loan options you have available to you in the first place.

To get a pulse on what your lender will be working with, request your credit report via AnnualCreditReport.com. You’ll also want to take a look at your current credit score. Your bank may offer credit score monitoring for free as part of your member benefits. If not, you can usually pay an extra fee to see your score when pulling your credit report.

If your credit score is low or you have lots of overdue accounts, collections, or spotty payment history, you may want to wait to apply for your loan. These negative marks can all result in a higher interest rate on your loan. Consider taking steps to improve your score before buying a home. 

Step 2: Get Your Financial Documents in Order

You’ll need a number of financial documents in order to apply for mortgage loans. Pulling them together early can help ensure a quick and efficient application process.

Here’s what you’ll want to have on hand:

  • Your last two paystubs 
  • Your last two years of W-2s and tax returns
  • Bank and checking account statements for the past two months
  • Statements for any other assets or sources of income you have
  • A copy of your driver’s license or state ID

If you’re a military member applying for a VA loan, then you’ll also need a certificate of eligibility from the U.S. Department of Veterans Affairs.

Step 3: Choose At Least 3 Lenders

You’ll next need to narrow down the lenders you want to get quotes from. You can ask your friends and family members for recommendations, as well as check online reviews and ratings. Experts recommend contacting at least three lenders, though as Freddie Mac found, contacting five may result in the most savings. You should also consider contacting different types of lenders, including banks, credit unions, and private mortgage lenders.

Need help finding a mortgage lender that’s right for your needs and budget? Check out our list of the best mortgage lenders.

Step 4: Request a Loan Estimate From Each Lender

Your next step is to request an official loan estimate from each lender you’ve selected. Every lender’s process is different for this, but you’ll likely need to provide information about your income, the home you hope to purchase, and your Social Security Number. The lender will also check your credit in the process.

Once the lender has the necessary information, it has three days in which to provide you an official loan estimate. All lenders are required to use the same, standardized form for these estimates. This may make it easier to compare your options.

Try to request your loan estimates on the same day. This will ensure you’re making the most accurate comparisons possible.

Step 5: Compare Your Loan Estimates

Once you have all your loan estimates in hand, it’s time to compare your offers.

You want to pay close attention to these data points:

  • Interest rate
  • APR
  • Monthly payment
  • Any mortgage insurance that’s included
  • Closing costs and upfront fees
  • Any lender credits 
  • Total cash to close

You should also flip to the “in five years” section of your estimates. This will give you a clear picture of what each loan option will cost you down the line. Which one results in more interest paid? Which one shows a lower principal balance?

Don’t be afraid to ask each lender to clarify any unknown fees or explain why its costs differ from another’s. Remember, these lenders are competing for your business, so even a slightly more expensive fee or rate might offer room for negotiation.

Make sure you’re comparing apples to apples. Are the terms of the loan the same? Are they the same types of loans (adjustable-rate, fixed-rate)? Be sure you’re comparing like quotes.

Step 6: Choose Your Lender and Move Forward

After you’ve evaluated your loan offers and negotiated any questionable fees, it’s time to make your decision. If two offers are very similar, consider your experience with the company’s customer service when making your decision.

Once you’ve made your choice, alert your chosen lender and ask to move forward with your loan application. You’ll need to hand over your financial documentation (as well as any other paperwork your loan officer requests)—and if you’ve already found a property, consider locking in your mortgage rate.

If you’re feeling overwhelmed or confused about the mortgage shopping process, make an appointment with a housing counselor for help.

The Bottom Line

With the right steps, you can shop for a mortgage and lock in a lender that is the right fit for your financial situation. Consider all of your options in order to save money, time, and stress during the homebuying process.

Article Sources

  1. Freddie Mac. "Why Are Consumers Leaving Money on the Table?" Accessed Nov. 27, 2019.

  2. SSRN. "No Shopping in the U.S. Mortgage Market: Direct and Strategic Effects of Providing Information," Download This Paper. Accessed Nov. 27, 2019.

  3. Consumer Financial Protection Bureau. "Explore Interest Rates," Accessed Nov. 27, 2019. 

  4. Consumer Financial Protection Bureau. "Preparing to Shop: Check Your Credit," Accessed Nov. 27, 2019.

  5. Consumer Financial Protection Bureau. "Preparing to Shop: Create a Loan Application Packet," Accessed Nov. 27, 2019.

  6. Consumer Financial Protection Bureau. "Exploring Loan Choices: Contact Multiple Lenders," Accessed Nov. 27. 2019.

  7. Consumer Financial Protection Bureau. "Comparing Loan Offers: Request Loan Estimates From Multiple Lenders," Accessed Nov. 27, 2019.

  8. Consumer Financial Protection Bureau. "What Is a Loan Estimate?" Accessed Nov. 27, 2019.

  9. Consumer Financial Protection Bureau. "Comparing Loan Offers: Compare Your Loan Estimates," Accessed Nov. 27, 2019.