There is no single best bank for everyone's mortgage

The best mortgage lender depends on what you need to borrow, how much cash you have for a down payment, your credit score, and how much time you want to spend shopping. A bank that offers the lowest rate for a borrower with a 750 credit score and 20 percent down may charge much higher rates to someone with a 620 score and 5 percent down. Some lenders specialize in jumbo loans (over $766,550 in most places), others focus on first-time buyers, and some won't work with self-employed borrowers at all.

The lender that is "best" is the one that will actually lend to you at a rate and cost you can afford. That usually means comparing offers from at least three lenders — a traditional bank, a mortgage broker or correspondent lender, and possibly a credit union if you belong to one. Each will pull your credit once and give you a rate lock and estimate of closing costs, usually within three days.

Key Takeaways

  • Banks, credit unions, mortgage brokers, and online lenders all offer mortgages, and each charges different rates and fees depending on your credit score, down payment, and loan size.
  • The lowest advertised rate is not the same as the lowest total cost — you must compare the loan estimate from each lender, which shows the interest rate, points, and all closing costs side by side.
  • Getting a rate lock and loan estimate from three different lenders takes about a week and costs nothing, and it is the only way to know which lender is actually cheapest for your situation.
  • Mortgage brokers can shop multiple lenders at once, but they earn a commission from the lender, so their incentive is not always to find you the lowest cost.
  • Credit unions often charge lower rates and fees than banks, but you must be a member and meet their lending standards, which vary widely.

How banks, credit unions, brokers, and online lenders differ

Traditional banks (Wells Fargo, Bank of America, Chase) lend their own money and set their own rates. They have physical branches, which some borrowers prefer for questions during the process. Banks typically require higher credit scores and larger down payments than other lenders. Their rates are usually middle-of-the-road — not the lowest, not the highest.

Credit unions are member-owned and often charge lower rates and fees than banks because they do not need to generate profit for shareholders. However, you must be a member to borrow, and membership rules vary. Some credit unions let you join if you live or work in a certain area; others require membership in a specific employer or organization. Credit union lending standards also vary — some will work with lower credit scores, others will not.

Mortgage brokers do not lend their own money. Instead, they shop your application to multiple lenders and earn a commission from whichever lender you choose. This can save you time because one broker can show you offers from five or ten lenders. However, the broker's commission comes from the lender, which means the lender may charge you a higher rate to cover it. Brokers are regulated by state, and standards differ.

Online lenders (Better.com, Rocket Mortgage, LendingTree) operate entirely through their website or app. They typically have lower overhead than banks with branches, which can mean lower rates. However, online lenders often have stricter credit and income requirements, and customer service happens by phone or chat rather than in person. Some online lenders are actually mortgage brokers, not direct lenders, so you are still paying a commission.

What to compare when you get loan estimates

When you request a rate lock from a lender, you will receive a Loan Estimate within three business days. This is a standardized form that shows the interest rate, the number of points you are paying (if any), the loan amount, the term (15 or 30 years, usually), and every closing cost: appraisal, title insurance, attorney fees, property taxes, homeowners insurance, HOA fees if applicable, and the lender's origination fee.

Do not compare interest rates alone. A lender with a 6.5 percent rate but $8,000 in closing costs may cost you more over time than a lender with a 6.75 percent rate and $4,000 in closing costs. The Loan Estimate shows the total amount you will pay at closing and an estimate of your monthly payment, so you can compare the true cost.

Watch for differences in what is included. Some lenders quote a rate without including property taxes or homeowners insurance in the monthly payment estimate, which makes their payment look lower. The Loan Estimate will show this, but you have to read it carefully. Ask each lender to explain any line item you do not understand before you lock a rate.

How credit score and down payment affect which lenders will work with you

Most traditional banks require a credit score of 680 or higher and a down payment of at least 10 to 20 percent. If your score is lower or your down payment is smaller, many banks will decline you outright. Credit unions and some online lenders will work with scores as low as 580 to 620, but they charge higher rates to offset the risk.

If you are putting down less than 20 percent, you will pay for private mortgage insurance (PMI), which protects the lender if you default. PMI costs between 0.5 and 1.5 percent of the loan amount per year, depending on your credit score and down payment size. Some lenders charge PMI as part of your monthly payment; others roll it into the interest rate. Ask each lender how they handle PMI so you can compare the true monthly cost.

FHA loans (backed by the Federal Housing Administration) allow down payments as low as 3.5 percent and accept credit scores as low as 580. However, FHA loans require mortgage insurance for the life of the loan, not just until you reach 20 percent equity. Not all lenders offer FHA loans, so if you are considering one, ask upfront which lenders on your list will work with FHA.

Self-employed borrowers and non-traditional income

If you are self-employed, a freelancer, or earn income from investments or rental property, some lenders will decline you or charge higher rates because your income is harder to verify. Traditional banks usually require two years of tax returns and may average your income over that period, which can lower the amount you can borrow if your income is growing.

Mortgage brokers and some online lenders are more flexible with self-employed borrowers because they can shop multiple lenders and find one that accepts your income type. However, you will still need to provide tax returns, profit-and-loss statements, and possibly bank statements to prove your income. Start the conversation early with any lender if your income is non-traditional, because some will tell you immediately whether they can work with you.

Jumbo loans and high-balance mortgages

If you are borrowing more than the conforming loan limit (which is $766,550 in most of the country in 2024, but higher in some expensive areas), you need a jumbo loan. Jumbo loans have stricter requirements: most lenders require a credit score of 700 or higher, a down payment of at least 20 percent, and proof of significant liquid assets. Interest rates on jumbo loans are usually higher than conforming loans, and closing costs are higher because the loan is larger.

Not all lenders offer jumbo loans. If you are borrowing a large amount, ask upfront whether a lender can work with jumbo loans before you spend time gathering documents. Mortgage brokers are often the fastest way to find a jumbo lender because they work with multiple sources.

How to shop and lock a rate without damaging your credit

When a lender pulls your credit to give you a rate quote, it creates a hard inquiry, which can lower your score by a few points. However, multiple inquiries from mortgage lenders within 14 to 45 days (depending on the credit scoring model) count as a single inquiry. This means you can shop three or four lenders in one week without multiple hits to your score.

Once you have received loan estimates from at least three lenders, compare the total cost, not just the rate. Call the lender with the lowest total cost and ask whether they can match or beat any competing offer. Some lenders will negotiate closing costs or points to win your business. Then lock your rate with the lender you choose. A rate lock usually lasts 30 to 60 days, which gives you time to complete the appraisal and underwriting.

Do not apply for new credit, close credit card accounts, or make large purchases while your mortgage is being processed. Any change to your credit profile can cause the lender to re-pull your credit and re-evaluate your offer, which can delay closing or change your rate.

Frequently Asked Questions

Should I use my bank if I already have a checking account there?

Not necessarily. Banks often charge higher rates and fees than credit unions or mortgage brokers, even to existing customers. Get a loan estimate from your bank, but also shop at least two other lenders. You may find a better deal elsewhere, and the time spent shopping is worth the savings.

What is the difference between a mortgage broker and a loan officer at a bank?

A loan officer at a bank can only offer mortgages from that bank. A mortgage broker can shop multiple lenders. However, the broker earns a commission from the lender, which may be passed to you as a higher rate. A loan officer at a bank does not earn a commission, but the bank's rates may be higher than other lenders anyway. Always compare offers from both.

Can I lock a rate before I find a house?

Yes. A rate lock is based on the loan amount, term, and your credit profile, not on the specific property. You can lock a rate for 30 to 60 days while you search. However, if you find a house and the appraisal comes in lower than the purchase price, the lender may adjust your loan amount and rate, so confirm this with your lender before you make an offer.

What happens if interest rates drop after I lock?

If rates drop significantly, you can usually float down to the new rate if your lender offers a float-down option. However, this costs money and must be done before closing. Ask your lender whether a float-down is available and what it costs before you lock your rate.

Do I need to use the lender's title company or insurance company?

No. The lender will require title insurance to protect their interest in the property, but you can shop title companies separately. Title insurance rates are regulated by state, so the price is usually the same, but service and speed vary. Ask your lender which title companies they work with regularly and get quotes from at least two before closing.