The First-Time Homebuyer’s Unbiased Guide to Choosing the Right Mortgage Lender

Surfing Zillow is easy. Finding a mortgage lender you trust isn’t as simple.

If it’s your first time going through the process, knowing the who-what-when-where can help you get a better deal on your first home loan and identify a quality lender when you see one.

In fact, you may even enjoy the process of getting your first mortgage with the right lending partner (well, not the payment, but definitely move-in day!). Your lender is one of the most critical pieces of the homebuying puzzle, and it’s worth it to do your due diligence before you jumpstart a conversation with a mortgage loan company.

Here are your top important questions answered:
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When’s the right time to talk to a mortgage lender?

You should have your first conversation with a mortgage lender six months before you plan to buy a house.

The role of the lender isn’t just to underwrite a loan, it’s to help the buyer apply for a mortgage, and to get them ready ahead of time. Their goal is to help you understand the ins-and-outs of the process: how much house can you afford? How much of a down payment should you have saved? What is your debt-to-income ratio? How does your credit look?

With a six-month runway, the lender can identify any hurdles in the way of a smooth mortgage application process and give the buyer suggestions on what to do in the meantime in order to strengthen their application.

Myth: you should be nervous to talk to a mortgage lender because they will judge you and critique your financial situation. False! People-first mortgage lenders want to help you. They have seen it all, so you can be comfortable and confident sharing where you’re at – it’s a judgment-free zone.

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Should you talk to a realtor or a lender first?

Always talk to a lender first. When you first connect with a realtor, their first question will be: have you talked to a lender?

Realtors are most effective with buyers who have already met with a lender and been pre-qualified. Your agent will want to know what your budget is for your first home. Without having a financial review with a lender, any price range will only be a guess.

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What should you do before talking to a mortgage lender?

There are three key things you can do in advance of your first conversation with a lender:

#1: Stabilize your income.

Lenders want to see a consistent, steady income in order to qualify you for a mortgage. Did you just get a new full-time job? Stack up those pay stubs for at least three months.

#2: Save for a down payment.

Set up an account just for your down payment funds and start automatically depositing a consistent amount per pay period. The down payment will be critical for any successful mortgage loan application. The sooner you start saving, the more you will have in the bank, and the more options you will have.

#3: Know your mortgage credit score.

The number you see on Experian or Credit Karma is used to approve you for a credit card or a car loan, but not a mortgage. Home loan officers use a different credit score and scoring model. Find out where you stand (and how to improve your current score) to help you prepare for that first conversation with a lender.

It’s also a good idea to review your credit report, which is different than your score, to make sure everything looks accurate. Something amiss? Here’s how to file a dispute.

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What’s the process of working with a lender?

During your first conversation with a lender, there are three key things they will ask:

#1: Where are you looking to buy?

The purchase process, rules, and regulations can vary from state to state, which means lenders must be licensed to do business in the location where you are looking to buy. The company will make sure you are partnered with the right loan officer – they will be able to help you figure out what local programs you’ll be eligible for, such as down payment assistance.

#2: How soon would you like to buy?

Understanding your ideal buying timeline will help your loan officer create a game plan with you. How much more should you save? Can you bump your credit score a bit? What if you are getting a raise or thinking about changing jobs? Once you have a timeframe to work with, they can help strategize on how best to get mortgage ready in time to hit your goal.

#3: What’s the price range you want to buy in?

It’s okay if you don’t know this completely – the lender is going to help you figure it out. Understanding your ideal target range will give them an idea of how to advise you on your total budget, and how much of a down payment you will need.

FYI: You’re going to qualify for a loan up to a certain amount, but it doesn’t mean you have to buy a home at the top of your maximum budget.

You don’t want to add a mortgage to your monthly bills and become “house poor,” with your mortgage taking a large percentage of your income. A good lender will help you find a balance based on your personal goals, credit score, income, and the rest of your finanical profile.

Pre-qualification vs. pre-approval

Your goal with this initial lender conversation is to check their rates and then get pre-qualified for a certain home-buying budget.

A pre-qualification is an estimate of how much house you can buy based on your income, credit, and other financial information. A pre-qualification is not a binding agreement to loan you money.

The lender will usually pull your credit score (this is considered a “soft pull” and not a “hard inquiry,” which means it doesn’t impact your score), but a pre-qualification is primarily based on what you self-report. Even though your information may not be verified by the lender, it’s important to be as transparent as possible so you have an accurate understanding of your budget.

Once this process is complete, the lender will provide you with a pre-qualification letter, which will help you work with your realtor to develop a game plan for your house hunt.

This is a good early step in the homebuying process. But once it’s time to get more serious, you’ll want to get pre-approved.

Pre-approval is when you officially apply for a mortgage with a lender and supply documentation on your financial situation – think bank and investment account statements, W2s, 1099s, tax returns, and pay stubs. The lender will verify your statements and then provide a letter stating the total amount you can borrow.

At this stage, you’ll need to have an estimate of your total down payment and the lender will lock-in your interest rate in the pre-approval letter. You’ll also need to select a loan term (30-year fixed, ARM) and type (FHA, VA, etc.) – don’t worry, your lender will help translate!

Like a pre-qualification, a pre-approval is not a guarantee you’ll be approved for a mortgage. That doesn’t happen until you are “cleared to close,” which will be right before you get the keys to your new home.

In today’s competitive market, you should plan on going from pre-qualified to pre-approved when you’re ready to start touring open houses, and you’ve decided on the right lender for you. That way, when the home you’ve been waiting for is available, you can take action quickly.

Home loan pre-approval letters are typically valid for 60 to 90 days, so you should plan on working towards pre-approval status 2 to 3 months before you want to move.

Pro tip: always talk to at least two lenders

The data shows that three out of four mortgage loan applicants only submit an application with one lender. Half of consumers don’t even shop around at all for lower interest rates before applying.

One call could save you $1,500 – borrowers that get just one additional rate quote see average savings of $1,500 over the life of the loan. If you get five quotes? On average, you’ll see savings of about $3,000.

Consumers who consider themselves knowledgeable about the mortgage loan process are twice as likely to compare lenders. In general, rates and terms are similar across lenders, but it’s easier than ever to explore your options to make sure you get the best deal.

Our recommendation: always talk to at least two lenders. If you don’t, you may be cheating yourself out of better rates, better terms, and a better overall experience.

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5 signs of a good mortgage lender

What should you look for when you’re searching for a quality mortgage partner?

#1: They treat you like a human first

How do you feel after your first conversation? If you walk away with a positive sense that they care about you and your home purchase, you’re in the right place.

“Mortgages are complicated, and the right lender is the lender who is willing to help you understand not just your rate and your payment, but the process overall, and how what they’re offering helps you achieve your goals and objectives of homeownership,” said Jessica Rowe, from Academy Mortgage, a Gravy partner.

#2: Their tech makes your life easier

The best lenders have technology that makes the process flow smoothly. The days of fax machines, manually mailing paperwork, or constantly having to get on a phone call to hear a simple update should be over.

The right technology means you can easily upload information, get notifications the instant your application has reached the next stage, and know at all times where you are in the process.

#3: They communicate, early and often

Technology is great, but sometimes you do want to talk directly to a person.

“The loan officer – you need to be comfortable with them. The company needs to offer technology to make things easier, but they also need to be willing to have a conversation when needed,” said Eric Stine, from Ruoff Mortgage, a Gravy partner.

#4: They prioritize speed

The right lender can be a difference-maker in a competitive bidding situation, especially if the seller is looking for a quick close.

“You need to be able to act fast. If your lender struggles to get things through the process in 30 days, that can cause problems with the seller,” said Stine.

#5: They focus on first-time homebuyers

Look for a lender that focuses on first-time homebuyers. No lender will say they don't want to work with first-time homebuyers, but because you may need a little more time to fully understand the process, and your budget may not be as high, some loan officers can be impatient, or they may only treat you to the economy-class experience.

Don’t settle for that. There are great lenders that take care of first-time homebuyers and sincerely want to help set you up for success on your first foray into real estate.

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5 signs you’re with the wrong lender

Want to know what to watch out for? Here are five red flags that should send you running in the other direction:

#1: They focus on selling first

If your prospective mortgage lender’s pitch makes you feel like everything is too good to be true, pause to consider if they’re honestly trying to educate you, or if they’re just trying to make you feel good to win your business.

“There’s no bigger disservice than telling a buyer what they want to hear, not what they need to hear. The buyer needs to hear what they need to do to get mortgage ready. It’s up to the lender to be open and honest with them,” said Stine.

#2: You walk away with more questions than answers

As a first-time homebuyer, there is going to be a lot you learn as you go through the process. If your lender isn’t taking the time to explain each step, or they’re rushing through your conversations as quickly as possible, or even worse: telling you not to worry, you don’t need to understand what’s happening – they aren’t to be trusted.

A people-first lender wants you to feel educated, comfortable, and confident – not uncertain and doubtful.

#3: There’s a big gap in communication

Is your realtor calling you for updates on your lender? Are you leaving voicemails and sending emails and waiting days for a response? Are you unsure about the next step?

Buying your first home is the biggest financial move you’ve likely made so far in your life. It’s not okay to feel left in the dark along the way.

#4: They use smoke and mirrors to get you bought in

Since the 2008 housing crash, mortgage interest rates and underwriting criteria are mostly standard across all lenders. If a lender promises you a vastly different interest rate than the other lenders you’re looking at – you should be suspicious, not excited.

“Anyone who offers out a rate without asking for a full application and a credit report – that’s a red flag,” said Todd Fowlks, from Academy Mortgage. Fowlks highlighted that the mortgage industry can advertise an interest rate as long as they include an annual percentage rate, or APR.

Since the average consumer may not know how the APR will affect their total cost, they choose mortgages based on the interest rate alone, which can be terribly misleading. “Sometimes the best interest rate is the worst deal,” said Fowlks.

Along those same lines, if a lender’s main claim to fame is their NerdWallet or Lendingtree rating, watch out. Don’t choose a lender based on ratings from sites where they can pay to have their company featured and endorsed. Focus on genuine customer reviews and references.

Finally, if the lender takes issue with you comparing them to other companies, be wary. A good mortgage lender will have zero problems with you shopping around.

#5: You’re on your own

If you aren't ready to buy right now, and they just deny you or put you on an email list, hoping you figure everything out on your own and come back to them down the road. This isn’t true customer service.

The best lenders partner with companies like Gravy to help aspiring buyers become mortgage ready.

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When is it too late to change mortgage lenders?

Let’s say you’re in the midst of a mortgage loan process, but you’re not having the best experience so far. You don’t feel confident you have a partner lender you can trust.

It’s possible to switch lenders up until the point of signing the closing papers, but what are the implications for doing so?

• After pre-qualification: No harm, no foul. This is a good time to talk with a few lenders before picking which you’d like to formally apply for pre-approval with.

• After pre-approval: Once you’ve reached this stage with two mortgage lenders, it’s the right time to make a decision on which one you’d like to go with. It’s okay to leave the other behind.  If you’re going to put in multiple mortgage applications, try to keep them within the “shopping period,” which is typically 14 days, so your credit doesn’t take a hit.

• During underwriting: Switching mortgage lenders during underwriting (after you’ve made an offer and it’s been accepted) is still possible, and in some cases, necessary to do if you find yourself in a situation with a predatory lender.

Of course, changing mortgage lenders last minute means you’re going to need a new mortgage lender to make your sale go through. That means another mortgage loan application, and multiple “hard” credit pulls, which can hurt your score.

It’s definitely not a reason to stay with a bad lender, but if your score is right on the edge of being good enough to qualify for a mortgage, this could harm your application. This will significantly delay the homebuying process, so changing mortgage lenders right before closing should be your last resort.

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Should you use a mortgage broker?

A mortgage broker is a middleman that compares home loans on your behalf, searching for the best rate and terms. While they can be helpful, their services aren’t free. A mortgage broker will typically get paid 1% to 2% of the loan amount by the lender and/or the borrower.

Think of them like a travel agent: if you’re willing to potentially pay more to have someone do leg work for you, it’s not a bad option. But today, mortgage terms, rates, and lender reviews are readily available. You can save that money and still find the best option for your first home loan.

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3 tips on finding the right lender

What’s the best place to start when you’re ready to have your first conversation with a mortgage lender?

#1: Talk to friends and family

Ask around to see if anyone in your network has used a lender they’d highly recommend. Be sure to also ask if there are lenders your friends and family recommend steering away from!

#2: Ask your bank or local credit union

Check with your current banking provider. Big banks like Bank of America, Wells Fargo, and Chase also offer mortgages. Beware, if you don’t love the customer service and technology you are already getting, their mortgage process isn’t going to be any better. It’s usually best to go with a company that focuses exclusively on mortgages.

#3: Tap into Gravy’s curated lender network

Log in to your Gravy account and tap “Find a lender” on the main menu. We are a neutral third party that takes the guess work out of finding a great lender. We assess lending companies based on a range of important factors, like customer satisfaction, rates, tech, speed, and first-time buyer focus. We’ll match you with the lender (or three!) that’s the best fit for you.

Plus, you can cash in your Gravy Rewards with any of our lending partners. Lenders don’t pay to be a part of Gravy’s network, and we continually monitor how these lenders deliver for our first-time homebuyers. We also don’t get paid anything when a loan closes with our partner lenders, so we can give truly independent advice.

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