How to Compare Mortgage Loan Offers

family of three sitting around table comparing mortgage loan offers on laptop

Requesting and comparing multiple mortgage loan offers can be an important part of the homebuying process. You might be just starting out and are unsure of how much you can borrow. Or, perhaps you found a home and are trying to pick the best lender for you. In either case, shopping for a mortgage can help you find out who will offer you the largest loan, the lowest closing costs, the smallest monthly bill or the best interest rate.

The Key Factors to Consider

Before comparing lenders, try to narrow down the type of mortgage you want so you can request and compare estimates for similar loans.

  • The type of mortgage: There are different types of mortgages, and each has pros and cons. For example, a government-backed FHA loan might be easier to qualify for than a conventional loan, but it could also require mortgage insurance and cost you more overall.
  • Required down payment: Consider how much you can afford for a down payment. Some loans only require 3.5% or 5% down, and a VA loan might not require a down payment at all. But putting at least 20% down could help you qualify for a lower interest rate and avoid private mortgage insurance on a conventional loan.
  • Rate type: A fixed-rate mortgage can offer you certainty, while an adjustable-rate mortgage may start with a lower rate that climbs later on.
  • Repayment term: A 30-year mortgage may have a lower monthly payment, but you might get a lower interest rate on a loan with a shorter repayment term.
  • Points: You may be able to buy points to get a lower interest rate, or the lender might cover some of your closing costs if you agree to a higher interest rate.

Once you've figured out these key details, you can start gathering estimates from lenders. You can also come back to this stage later and see how changing these factors can impact your offers.

If you're not sure which lenders to work with, you could ask friends, family members and your real estate agent for recommendations. While you ultimately want to get the mortgage that works best for your finances, having a pleasant and fast experience can also be important. And remember, the lender won't necessarily be the loan servicer you work with when repaying your mortgage.

How Can You Compare Mortgage Offers?

You can compare mortgage offers by requesting loan estimates from several lenders. These are standardized three-page forms that a mortgage lender will send you within three business days of getting your application.

The format can make comparing multiple offers easier, and the Consumer Financial Protection Bureau has an annotated example loan estimate that you can review ahead of time to better understand each section. Every loan estimate should include important details, such as the:

An estimate isn't a guarantee that the loan will have all the same terms, and it's not a guarantee the lender will approve your application. Still, they can be helpful for comparing offers.

As you examine your loan estimates, look closely for any differences. For example, an estimate might have high closing costs that you can negotiate (showing a competing loan estimate might help), or you might find only one estimate assumes you're buying mortgage points.

You can also compare the estimated cash needed to close on the bottom of the second page to understand how much money you'll need for your down payment plus closing costs. The comparison boxes on the third page show which loan might be best over time—or you can use the APR and a mortgage calculator to find out how different terms could affect your loan.

If you have questions or want a new loan estimate, you can reach out to your loan officer or broker. Each loan estimate request may require a credit pull (don't forget to unfreeze your credit reports if they are frozen) and lead to a hard inquiry, which could ding your credit scores by a few points temporarily.

To minimize the effect loan estimates have on your credit, keep in mind that FICO® Score and VantageScore credit scores count multiple mortgage inquiries as one if they occur within a 14- to 45-day period (depending on the type of score). This way, you can shop for the best loan without worrying about inquiries having a major effect on your credit.

How to Get Ready to Apply for a Mortgage

You may be able to get loan estimates with a few basic pieces of information about yourself, the loan you want and the home you want to buy. However, a full mortgage application can require a lot more information. To get ready, you could:

  • Gather the required documents. Work with your real estate agent and loan officer to find out exactly what documents you'll need. These will likely be related to your finances and identity, such as pay stubs, bank and brokerage statements, W-2s, tax returns, loan statements, proof of previous rent or mortgage payments and copies of identification.
  • Check your credit. Mortgages may have minimum credit score requirements, and your score can impact the down payment requirements. If you have time, improving your credit could help you qualify for a lower interest rate.
  • Pay down credit card debt. If you have a high credit utilization ratio (percentage of available credit you're using), paying down your credit card balances could be a quick way to improve your credit scores.
  • Don't apply for new credit accounts. You may also want to hold off on applying for new credit cards or loans before getting your mortgage. The potential impact on credit scores aside, the account could increase your debt-to-income ratio, and mortgage lenders would prefer it if you didn't take on new financial obligations right before they lend you money.

Focusing on your overall financial position can also be important, as a higher income, larger savings and history of consistently making your loan and rent payments on time can all affect your mortgage offers.

You can monitor your Experian credit report and credit score for free as you're getting ready to take out a mortgage and compare offers. An Experian CreditWorks Premium℠ subscription provides access to the FICO® Score based on Experian data that's commonly used for mortgage loans.