5 Tips for Finding the Best Mortgage Lender

5 tips for finding the best mortgage lenders

Here are five tips to find the best lender for you.

1. Get your finances in good shape

The credit score required to get a mortgage varies by the type of loan and the lender. With a higher score, you'll have more choices of loan programs and you'll qualify for lower interest rates.

Before shopping for lenders, find out your credit score and make sure your credit reports are accurate. NerdWallet offers a free credit score and report, updated weekly, using TransUnion data.

You can receive free copies of your reports from each of the three major credit bureaus through the government-mandated AnnualCreditReport.com website. Check the reports carefully, and dispute any errors.

Next, work on improving your credit. Pay bills on time, and work on paying off credit card balances. Lowering your debt will also improve your debt-to-income ratio, or DTI, another key element that lenders evaluate. An ideal DTI ratio for a mortgage is under 36%. Reducing your debt payments will also free up money to save for a home down payment.

2. Learn what kind of mortgage is right for you

A variety of home loans are available to satisfy different needs. For example:

• VA loans can help active and veteran military members and USDA loans are available for rural homebuyers. Neither require a down payment.

• FHA loans have lower credit score requirements than other mortgages and require as little as 3.5% down.

• Conventional loans are generally geared to borrowers with good credit, and some require as little as 3% down.

• Jumbo loans are used to finance properties that are too expensive for most conventional loans.

Home loans also vary by term length, such as 15 or 30 years, and by how the interest rate works. With fixed-rate mortgages, the interest rate stays the same for the entire loan term; with an adjustable-rate mortgage, the interest rate periodically increases or decreases, after an initial fixed-rate period.

Some lenders offer a broad mix of mortgages; others specialize in certain types. Once you understand the general options, you can seek out the lenders that offer what you need.

3. Compare rates from multiple mortgage lenders

Search for the best mortgage rates online from lenders that offer the types of loans you want. Keep in mind that the rate quote you see is an estimate. A lender will have to pull your credit information and process a loan application to provide an accurate rate, which you can then lock in if you’re satisfied with the product.

Once you have several quotes from lenders, narrow the list to those with the lowest rates. The total interest you pay over the life of the loan is a big figure, and a lower rate can save you thousands of dollars.

» MORE: Use our mortgage calculator to find out your monthly mortgage payment.

4. Get preapproved

Apply for mortgage preapproval with more than one lender before you start shopping for a home. A mortgage preapproval letter shows sellers and real estate agents that you're a serious buyer. It's evidence that a lender has evaluated your finances and figured out how much you can afford to borrow.

Getting preapproved now will also save time later. When you're ready to make an offer on a home, lenders will have the information they need to process your home loan.

To get preapproved, you’ll have to provide information about your income, debts and assets. Lenders typically require:

• Social Security numbers for yourself and any co-borrowers.

• Savings, checking and investment account information.

• Information about outstanding debt obligations, including credit card, car loan, student loan and other balances.

• Two years of tax returns, W-2s and 1099s.

• Salary and employer information.

• Information about how large a down payment you can make and where the money is coming from.

5. Compare loan estimates and choose the best deal

A loan estimate is a document a lender must provide after you've applied for a loan and have provided certain information, including the address of the property you want to buy. The document will spell out important details about your loan, including the interest rate, monthly payment, fees and estimated closing costs.

Compare loan estimates from at least three lenders. Read each line to make sure the details match what you expected, and ask questions about anything you don't understand. Then carefully compare costs and terms to choose the best deal for you.

» MORE FOR CANADIAN READERS: How to choose a mortgage lender