How to Shop for a Mortgage & Compare Rates?
Shopping for a home loan can be complex, but understanding the key steps makes it easier to secure the best rates and terms whether you're exploring options through major banks, mortgage lenders, or local credit unions.
This guide will walk you through how to shop for mortgage loans, compare mortgage rates, and apply effectively. By following these steps, you can make informed decisions that align with your personal finance goals and homeownership dreams.
Ready to start comparing rates? Before you continue reading the article, check out our Digital Mortgage application and explore tailored loan options that fit your needs right now.
Is It a Good Idea to Shop around for a Mortgage?
Absolutely. A mortgage is probably the largest personal finance decision you'll make, and the stakes are high. Choosing the right mortgage can mean the difference between financial stability and unnecessary stress when getting into your new home.
Every mortgage lender offers something different—interest rates, fees, or loan terms. When you shop around, you compare these factors, potentially saving thousands over the life of the loan.
What Are the Steps to Shop for a Mortgage?
Step 1: Check Your Credit Score
Your credit score is like a financial report card—it shows mortgage lenders your financial responsibility. A useful resource is annualcreditreport.com, where you can access your full credit report annually for free.
You can check your credit history and FICO score through major credit bureaus such as Experian, TransUnion, and Equifax.
For a conventional loan, a score of 620 or above is needed; for a Federal Housing Administration (FHA) loan, it’s 580 or higher. Credit score requirements vary, higher the FICO score, the better terms you’ll receive.
Step 2: Learn About Types of Mortgage Loans
Mortgages are not one-size-fits-all. There are several types of mortgages available, and each has its own advantages and disadvantages:
Fixed-rate Mortgage:
A fixed-rate mortgage ensures that your interest rate remains the same over the life of the loan, providing predictability and stability.
FHA Loan
Backed by the Federal Housing Administration, FHA loans make homeownership accessible to those with lower credit scores and smaller down payments. They require at least a 3.5% upfront down payment and private mortgage insurance (PMI) premiums to offset the risk.
VA loans:
Designed for veterans, active military, and their families, Department of Veterans Affairs loans offer several benefits, including no upfront down payment, flexible credit standards, no monthly mortgage insurance, and options to refinance up to 100% of the home's value.
USDA Loan Program
In approved rural locations, the United States Department of Agriculture (USDA) offers low-to-moderate income families mortgages, making homeownership more accessible.
Here’s more information about the USDA loan program.
Step 3: Gather Your Financial Documents
When shopping for a mortgage, lenders will want to see proof of your financial stability. Having the right documents ready can streamline the process.
What Documents Are Needed for Mortgage Preapproval?
You’ll need the following documents to apply for a mortgage preapproval:
- Recent pay stubs from your job to prove regular income.
- Bank statements from the past three months to show your income and ability to make a down payment.
- Investment account statements to further demonstrate financial strength.
- A gift letter if a friend or relative is assisting with your down payment.
Why Is Financial Documentation Crucial in Securing a Mortgage?
It’s all about trust. A lender wants to feel confident that you can repay your loan, and your financial documentation offers proof. Missing or incomplete paperwork could slow down or even derail your approval process. So gather everything ahead of time—it’ll make the process smoother and faster.
What Factors Should I Consider When Comparing Mortgage Rates and Terms?
When comparing rates, the interest rate is just one part of the picture. There’s also:
Interest rates vs. Annual Percentage Rate (APR)
The interest rate is the base cost of borrowing money. APR includes fees like origination and closing costs, giving you the full picture. A lower interest rate might seem appealing, but if the APR is high, you could end up paying more in hidden fees.
Loan Terms (15-Year vs. 30-Year Fixed vs. Adjustable-Rate Mortgages)
The length of the loan also affects how much you’ll pay over time. A 15-year mortgage has higher monthly payments but less interest overall. A 30-year mortgage offers smaller payments but more interest in the long run. ARMs offer an initial lower rate, but that rate can fluctuate over time.
It's essential to compare loan amounts and understand how the conforming loan limits may impact your options based on the area you're buying in.
How Long Do I Have to Shop for a Mortgage Without Hurting My Credit?
You might worry that shopping around will hurt your credit. This means you can—and should—compare several lenders without fear of damaging your score.
What Is the Best Way to Compare Mortgage Rates From Different Lenders?
The best way is to get multiple prequalification offers from different lenders. This gives you a better view of what each lender is offering. You can also use a mortgage calculator to estimate your monthly payments based on the loan amount you’re considering.
Additionally, mortgage brokers can help by negotiating with lenders to get you the lowest rates and best terms. A good broker will compare everything for you, including rate quotes, loan estimates, and closing costs.
Does Mortgage Shopping Hurt My Credit Score?
This is a common concern, but the truth is that the damage to your credit score can be minimal if done right. It boils down to the difference between soft and hard inquiries.
Soft vs. Hard Credit Inquiries
Soft inquiries happen when a lender does a preliminary check. This doesn’t affect your credit score. Hard inquiries, which occur when you apply for preapproval, are much more thorough and may lower your score by a few points.
How to Minimize the Impact of Credit Checks When Shopping for a Mortgage
To minimize the impact, plan your mortgage shopping within that 45-day window. This way, all inquiries are counted as one. You can get multiple loan offers and still protect your score.
What Are the Key Factors to Consider When Shopping for a Mortgage?
When shopping for a mortgage, it’s easy to get laser-focused on the numbers. But the truth is, the experience of working with your lender can be just as important as the rates and fees. When choosing your lender, you should consider factors like:
Interest Rates
A small difference in the interest rate can mean big savings over the life of your loan. Some lenders also offer rate lock options that allow you to "lock in" a rate for a set period while you finalize your home purchase. This protects you from rate increases before closing.
Loan Options
Does the lender offer the type of loan you need? Whether it’s an FHA, VA, USDA loan (favorable for first time homebuyers), or even a Freddie Mac or Fannie Mae-backed mortgage? Make sure they have what you’re looking for.
Rate offers all these loan options plus refinancing options, such as HELOCs and VA loans that provide flexibility and tailored solutions to fit your financial goals*. We also offer personalized guidance to help you make the best choice when shopping for a mortgage.
Debt-To-Income Ratio
Lenders use this metric to gauge your ability to manage your debts, including any student loans or credit card debt.
Underwriting
Lenders’ underwriting standards can vary, and it’s important to know how they evaluate your financial background. A transparent process is key, so make sure your lender communicates clearly throughout the underwriting stage.
Reputation and Customer Service
You want to work with a loan officer and lender like Rate, that’s reliable, transparent, and quick to respond.
Think about the long-term relationship you’re entering into—will this lender meet your needs down the road if you decide to refinance or have questions?
Additionally, ask yourself how easy their online systems are to use. In today’s world, having access to user-friendly tools for tracking your mortgage or making payments can save you a lot of time and frustration.
To make the loan application process seamless from application to approval, consider choosing Rate as your lender. We offer Same Day Mortgage approval and an intuitive app that makes it easy to track your mortgage payments.
Understanding Closing Costs
What You Should Know About Seller-Paid Closing Costs
In competitive real estate markets, some sellers may offer to pay a portion of your closing costs to sweeten the deal and make their property more attractive. This can be particularly useful if you're tight on cash but still want to make a competitive offer.
However, keep in mind that this isn’t always guaranteed, and negotiations around seller-paid closing costs can vary based on market conditions and the specific property you’re looking at.
What Other Fees Should I Expect During the Mortgage Process?
Closing costs can add up quickly, often amounting to 2% to 5% of the home’s purchase price. Common fees include:
Origination Fees
These cover the lender’s administrative costs in processing your loan.
Appraisal Fees
These ensure the property is valued appropriately for what you’re paying.
Title Insurance
This protects you and the lender from disputes over property ownership.
It’s easy to get caught up in the excitement of buying a home, but these additional costs can be a shock if you’re not prepared. Make sure you ask your lender for a clear breakdown of all fees so you can budget accordingly.
Apply Now for Fast Approvals
Once you've compared rates and identified the right offer, the next step is applying. With our Digital Mortgage application, the process is faster and more straightforward than ever. We offer Same Day Mortgage approval, helping you secure financing quickly and with less hassle.
Ready to take the next step? Get started today and explore how Rate's tailored loan options can help you achieve your dream of becoming a homeowner.
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.
Rate, Inc. is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the Nevada Department of Veterans Services, the US Department of Agriculture, or any other government agency. No compensation can be received for advising or assisting another person with a matter relating to veterans’ benefits except as authorized under Title 38 of the United States Code.