How to shop for a mortgage and compare mortgage rates

Peter Warden
The Mortgage Reports editor

Shopping for a mortgage can save you thousands

Everyone says to compare mortgage rates before you buy, but do you really have to? 

After all, getting pre-approved by a few different lenders and comparing costs could take hours. 

But those few hours of work are proven to be worth it. 

In fact, the Consumer Financial Protection Bureau (CFPB) says borrowers could save $300 per year on average by comparing rates from just three lenders. 

And negotiating your rate can get it down even lower.

All told, you could save thousands by comparing rates — even tens of thousands, if you keep your mortgage a long time. 

Ready to get started?  

Find and lock a low mortgage rate today (Jun 23rd, 2021)

How to shop for a mortgage: A step-by-step guide

Shopping for a mortgage isn’t all that hard or time-consuming. At least, not if you know what to expect. Here’s how the process will go:

  1. Get your documents together — Lenders will need proof of your income, assets, and credit to give you an accurate rate quote. So start compiling the paperwork you’ll need on your application, like bank statements and recent pay stubs
  2. Get preapproved — Find a lender you like the look of and get a preapproval letter. This allows you to make an offer a seller will accept. But getting pre-approved doesn’t commit you to that lender —you can swap to another later if you find a lower rate
  3. Shop around with a few lenders — Request quotes from at least four lenders plus your existing lender (if any), your bank or credit union and any mortgage brokers you have relationships with
  4. Compare the quotes you get — We’ll show you how to compare loan estimates and find the best mortgage rate below
  5. Push the button — Choose your preferred lender, fill out your mortgage application, and stay on top of admin until closing
  6. Don’t make any life changes before closing — Try to avoid changing jobs or becoming unemployed, if at all possible. And don’t open or close credit accounts or go on debt-fueled spending sprees. Any of the last three could reduce your credit score. And lenders routinely recheck your score just before closing

We’ll cover some of those in more detail below. But those are the basic steps to shopping for a mortgage and finding the lowest rate.

Start shopping for your mortgage here (Jun 23rd, 2021)

How to compare mortgage rates

Your main priority is probably saving money. So by all means, organize your quotes by mortgage rate with the lowest on top.

But remember — rates aren’t the only thing to consider. Your loan estimates will list other costs and fees that you need to take a close look at before choosing a mortgage lender. 

To do this, look carefully at the Loan Estimate you get from each lender. These will have all the answers you need to make a sound decision.

For instance, you can always find your loan terms, quoted interest rate, and monthly payment on the first page of your loan estimate: 

How to compare mortgage rates — The Mortgage Reports

And you’ll see your estimated closing costs and fees on the second page.

You’ll also find a list of the costs you “cannot shop for,” so you know which prices you should be comparing and which you can ignore.

How to compare closing costs — The Mortgage Reports

Images: CFPB

Because these documents are uniform, it’s easy to compare Loan Estimates from different lenders side by side and find the very best deal on your rate and closing costs.

Get custom loan estimates here (Jun 23rd, 2021)

Get at least four mortgage quotes on the same day

The CFPB says an average buyer can save $300 per year by comparing three mortgage quotes. 

But three isn’t necessarily a magic number. In fact, we’d recommend comparing four or more mortgage rate quotes to make sure you’re getting the best deal. 

Rates can vary widely from one lender to the next, and getting a quote is free. So you’re doing yourself a favor by getting as many as you can. 

It also helps to get all your quotes in one day, if you can. That’s because mortgage quotes expire quickly. Rates are constantly changing, and a quote you got yesterday may already be out of date. 

Plus, if you look at two lenders on different days, you may not get as accurate of a comparison. 

Watch out for sneaky “discount points”

Some lenders offer you an ultralow mortgage rate only by inflating the closing costs you have to pay at closing. Sneaky or what?

But how will you know? Look out for the term “points” near the top of page 2 of your loan estimates. These are also called “discount points” or “mortgage points.” 

These points are simply a way for you to buy a lower mortgage rate through an upfront payment. And just about every lender will sell you those.

>> Related: Mortgage discount points explained 

So, to uncover the best deal, you must level the playing field. And that means eliminating the impact of those discount points. Only then are you comparing apples with apples. If you can’t do that yourself, call the lender and ask what its rate will be without discount points.

There’s nothing wrong with these points, and you may ultimately choose to buy them. But, if you compare one quote that includes them with another that doesn’t, you’re in an apples and oranges situation.

Use your quotes as leverage in negotiations

Having multiple quotes doesn’t just give you information. It can give you leverage, too.

Don’t hesitate to play one lender off against another: 

“I like your company, but I’ve got a quote here with a lower rate or less expensive closing costs. Can you match it? Better yet, can you beat it?”

Chances are, these negotiations won’t lower your rate by much. But, when you’re borrowing huge amounts over decades, even a tiny drop in your rate can add up to hundreds or even thousands. And what do you have to lose?

>> Related: How to negotiate a better rate for your mortgage

How many mortgage quotes is too many?

The short answer is there’s no such thing as too many. It’s so easy to get mortgage quotes online nowadays, your personal limit will largely be governed by your perseverance and button-clicking threshold.

The Federal Trade Commission suggests, “Different lenders may quote you different prices, so you should contact several lenders to make sure you’re getting the best price.” But what does “several” mean?

Aim to get at least four mortgage rate quotes — but get more if you can.

Your goal is to be confident you’re getting an exceptional deal. If you don’t want to go over the top comparing offers, know that four is probably a reasonable number, plus your own bank and existing mortgage lender or broker, if you have one.

A 2012 Stanford University study found that borrowers who obtained four quotes saved almost $2,700 in loan costs over those who only got one or two quotes.

Get customized mortgage quotes here (Jun 23rd, 2021)

What’s a good mortgage rate?

Mortgage rates are incredibly low right now — below 4% on average. If you can secure a fixed mortgage rate below 4%, that’s a good rate. For perspective, the historical average for 30-year fixed rates is about 8%. That’s the average since Freddie Mac’s records began in 1971. 

That said, the best mortgage rates are reserved for “top-tier” borrowers. Those are people with stellar credit scores, spotless credit reports, little or no other borrowing (besides their mortgage), plenty of assets and savings and a big down payment.

But few of us are such paragons of financial virtue. And most of us won’t qualify for the very best mortgage rates. We’re somewhere on a spectrum that has top-tier borrowers at one end and subprime ones at the other. 

Where you are on that spectrum will determine the range of mortgage rates you qualify for. But knowing how to shop for a mortgage will help you make sure your deal is at the better end of that range.

Will comparing mortgage rates hurt your credit score? 

You’ve probably read that your credit score takes a small hit every time a company checks your score when making a lending decision (a “hard inquiry,” in industry jargon). 

But both the two biggest companies that design credit-scoring systems (FICO and VantageScore) allow you to shop around for mortgages and auto loans without hurting your score.

Getting multiple mortgage quotes will not hurt your credit score, as long as you shop in a focused time frame. Aim for under two weeks, and try not to shop longer than a month.

They treat multiple hard inquiries for these as a single event, so you take just one small hit whether you get one or two mortgage quotes or a whole pile of them. And, providing everything else in your credit report remains good, that small hit should typically fade away to nothing within a few months.

But there is one caveat. In its latest versions, FICO counts multiple hard inquiries for a single mortgage as one event if they’re made within a 45-day period. But VantageScore does so over a two-week rolling window.

So make sure you do your research in a focused way, close to the time when you’re going to make an application. You’ll want to do that anyway because mortgage rates change so quickly that quotes have a very short shelf life.

And because it’s so easy to do online.

Start mortgage rate shopping online here (Jun 23rd, 2021)

Look for a good lender as well as a good deal

Many people have longer relationships with their mortgage lenders than with their spouses. You could be looking at 30 years. And a bad mortgage lender is its own kind of bad relationship.

Yes, your main goal is to save money by getting the best mortgage rates you can. But, as you whittle down your shortlist to a few great deals, do a bit of research online about the ones that are looking good.

>> See: Mortgage lender reviews

You may legitimately decide to pay slightly more each month for one that answers calls quickly and handles inquiries well — and that’s likely to stand with you if you need help sometime in the future.

What are today’s mortgage rates?

To find out what your best deal on a mortgage today is, get multiple quotes quickly. Then compare them slowly, making sure each loan has comparable terms and the same lock period. That’s easy to do online.

Verify your new rate (Jun 23rd, 2021)