1. You Can Shop Around with Different Lenders
Loyalty isn’t necessarily your best friend when it comes to mortgages. First-time buyers sometimes think they have to go with the first lender they talk to, which is often their bank. However, you should shop around for lenders, just like comparing prices on flights or hotel rooms.
Each mortgage lender works with different loan programs. Each dictates its terms, fees, and, most importantly, interest rates. A seemingly small difference, like a 0.2% lower interest rate, can save thousands of dollars over the life of a loan.
Example: $300,000 30-year fixed-rate loan differences
|
Interest Rate |
Monthly Principal & Interest |
Lifetime Interest Paid |
|
6.8% |
$1,955.78 |
$404,079.20 |
|
6.6% |
$1,915.98 |
$389,751.52 |
|
6.4% |
$1,876.52 |
$375,546.38 |
There are also different types of lenders out there—big banks, credit unions, and online lenders—so don’t limit yourself to just one option.
Most importantly, you’re the customer here, not the other way around. Make sure the lender you pick offers you terms and services that align with your needs.
2. Yes, You Can Change Your Lender (Even After Pre-Approval)
Did you get pre-approved but found a sweeter deal with another lender? Good news—you don’t have to stick with a lender just because they approved you first.
A mortgage pre-approval letter isn’t a marriage contract. It simply shows sellers you’re serious and financially eligible as a buyer. If another lender offers you better terms—or if your dream home suddenly needs a different type of loan—you can switch during the process.
Just be mindful of timing. Keep communication flowing with your new lender and any agents involved to ensure that the transition doesn’t cause delays in your closing timeline. Switching too near the closing date may hit reset on the underwriting and appraisal process and cause the closing to be in jeopardy.
3. Hard Credit Hits Won't Ruin Your Score (If You're Fast)
Worried that shopping for multiple lenders will destroy your credit score? Here’s the deal—credit bureaus know consumers need to shop around, and they make allowances for this.
If you submit multiple mortgage applications within a 14- to 45-day window (depending on the credit scoring model), those inquiries will count as a single hard inquiry. Translation? Your credit score won’t tank just because you’re doing your homework.
Pro tip? Time your mortgage applications wisely and consolidate lender checks within that grace period.
4. It’s Not Just About the Interest Rate
Sure, interest rates grab the spotlight—and for good reason. But here’s the lesser-known truth about mortgages: there’s more to consider than the rate.
What else matters?
- Loan terms (15-year vs. 30-year loans): Shorter terms often mean less interest overall but higher monthly payments.
- Down payment requirements: Some lenders extend loans with as little as 3% down, but remember that a smaller down payment could mean extra costs like private mortgage insurance (PMI).
- Customer service: You want someone who answers your questions not dodges your calls when things get tricky.
- Mortgage fees: Lenders are in the business of making money. Besides your interest payments, another way they do it is through origination fees or application fees. Some are higher than others.
- Points: What looks like a good deal on the interest rate may be because the loan terms require you to pay a "point" at closing. This is an upfront payment on loan interest.
When comparing loan packages, weigh the full picture, not just the number in bold at the top with the interest rate.
5. Understand Those Pesky Fees
A little more about those various fees. Lender fees vary significantly and hide under different terms so knowing what to look for is essential.
Here are some standard fees you might encounter in the mortgage process:
- Origination Fees: These cover the lender’s costs for processing your loan. They typically range from 0.5% to 1% of the loan amount. It may or may not be negotiable.
- Appraisal Fees: Lenders require a home appraisal to ensure the property's value matches the loan amount. Expect to pay around $300-$450 for this. This is a fixed fee because it's paid to a third party.
- Mortgage Application Fee: Not all lenders charge this fee, but if they do, it can range from $0 to $500.
- Closing Costs: A catch-all term for the fees tied to finalizing the transaction, including title insurance, escrow fees, and recording fees. Closing costs often range from 2% to 5% of the home’s purchase price.
But other fees you might see show up on a loan disclosure:
- Document Preparation Fee: Purportedly for time behind preparing loan documents
- A Credit Report Fee: Passing on the cost of pulling your credit report to you
- Title fees: Related to title searches, title insurance,and settlement
Don’t be shy about asking lenders for a detailed breakdown of fees up front. Transparency is a sign you’re working with a reputable lender.
6. Credit Scores Aren't the Same
Mortgage lenders rely on specific FICO® scoring models from the three major credit bureaus to assess creditworthiness during loan applications. Generally, this model weighs different factors of your credit history to land on a number. Your payment history and amount owed are the two heaviest-weighted items.
But, what you might not know is that FICO has 16 different scoring models. Each credit reporting bureau uses a slightly different version of the FICO® scoring model tailored for mortgage evaluations:
- ExperianTM: FICO® Score 2
- TransUnion®: FICO® Score 4
- Equifax®: FICO® Score 5
These models emphasize factors most relevant to financial reliability for home loans, such as payment history and outstanding debt. But their use of slightly different models is why your credit score isn't the same across all three reports. Mortgage lenders generally will use the median score when evaluating your creditworthiness. When applying with a co-borrower, the lender will review both credit scores and consider the lower median score as your FICO® Score.
Reviewing and monitoring your credit reports from all three bureaus is essential to avoid surprises during the mortgage application process.
Bonus Tips to Nail Your Mortgage Application
Now that you’ve got the big truths about the mortgage process, here are a few bonus tips to help you shine through your application:
- Check Your Credit Score First: Make sure it’s in good shape and dispute any inaccuracies before lenders check it. Find ways to boost it if it's low, like paying down debts, getting better at on-time payments, or increasing your credit limit.
- Prepare Your Documents: Lenders will ask for proof of income, asset statements, tax returns, bank statements, and employment history. Have these ready to avoid delays.
- Stay Steady: Now isn’t the time to open new lines of credit or quit your job. Keep your financial profile stable until closing day.
The Bottom Line
Remember, the ultimate goal is to get a mortgage that meets your needs and sets you up for financial success—not one that surprises you with hidden costs or obligations. You'll step into your home-buying journey with clarity and confidence by understanding how to apply for a mortgage, what to look for in lenders, and which fees might pop up. With the right team in place, your new home is closer than you think!
About the Author: Preston Guyton is the founder of ez Home Search. He has been a real estate leader for over 20 years. Starting with a focus in South Carolina, he has helped coach and empower real estate professionals to achieve their full potential by meeting the needs of their local community.
