Most homebuyers talk to one lender, get approved, and move forward — never knowing they could have gotten a better rate or lower fees elsewhere. Choosing a mortgage lender correctly can save you thousands upfront and tens of thousands over the life of the loan. Here’s how to do it right.
The three types of mortgage lenders
- Banks and credit unions. Your existing bank or a local credit union. Advantages: established relationship, sometimes relationship discounts, in-person service. Disadvantages: often not the most competitive rates, slower processing.
- Mortgage banks and direct lenders. Companies that specialize only in mortgages — Rocket Mortgage, loanDepot, Better.com. Advantages: streamlined process, competitive rates, fast approvals. Disadvantages: less personalized, may sell your loan immediately after closing.
- Mortgage brokers. Independent professionals who shop your application across multiple lenders and find you the best offer. Advantages: access to many lenders at once, expertise, often best for complex situations. Disadvantages: broker fee (usually paid by the lender, not you), variable quality.
Get at least three Loan Estimates
Federal law requires lenders to provide a standardized Loan Estimate within three business days of application. Get quotes from at least three lenders — ideally one bank, one online lender, and one broker. Compare the APR (which includes fees), not just the interest rate. A lender advertising a 0.25% lower rate might have $3,000 more in origination fees, making them the more expensive option over a 7-year average hold period.
What to look at on the Loan Estimate
Page 1: loan terms, projected payments, and cash to close. Page 2: the itemized closing cost breakdown — this is where lender-to-lender differences show up. Look specifically at Section A (origination charges) and Section B (services you cannot shop for) vs Section C (services you can shop for, like title). Page 3: comparisons tab showing total interest paid over the loan life. The total interest over 30 years is often more revealing than the monthly payment difference.
Questions to ask every lender
What is your average time to close? (Important in competitive markets — a lender who takes 60 days hurts your offer.) Do you sell loans after closing? (If yes, who services them?) What are your lock policies — how long can you lock the rate and what does extending the lock cost? Are there any prepayment penalties? What’s your process if something comes up during underwriting?
Rate locks and timing
Mortgage rates change daily. Once you’re under contract, you’ll need to lock your rate — typically for 30, 45, or 60 days. Longer locks cost more (either a higher rate or a fee). Lock too early and you may pay for time you don’t need; lock too late and rates may have moved against you. Your loan officer should advise on timing based on your closing timeline and rate trends.