Comparing mortgage lenders can be daunting when you’re on the search for your first home.

But don’t let that temporary feeling intimidate you, or tempt you into settling for the first mortgage lender that sends you an offer.

Quotes from different lenders vary widely, so if you want to identify the best mortgage rate for you, you need to proactively compare offers.

Here are four questions to ask yourself when evaluating mortgage offers.

1. Is the rate competitive?

Don’t look just at the interest rates that a handful of mortgage lenders send you. It’s important to compare rates across many lenders. This will help you figure out whether to expand your search and weigh other lending options, such as a local bank or credit union.

The Consumer Financial Protection Bureau offers a customizable tool to get a sense of the mortgage rates that someone with your credit score and down payment can expect in your state. You also can use the bureau’s “explore interest rates” tool to play around with different scenarios and see how much you’d save if you adjusted the terms of your loan or increased your down payment.

You also can learn about national loan rates and trends by checking Freddie Mac’s current mortgage survey.

Rates change regularly, so be prepared to see a different rate when you receive your three-page loan estimate than the one a lender initially quoted, the Consumer Financial Protection Bureau advises.


2. Why is the rate so low?

If a lender advertises an especially competitive rate, it’s smart to investigate further so that you know what’s behind it. You might find that an attractive rate isn’t quite the deal it seems.

For example, to qualify for a lender’s best mortgage rates, you might have to buy discount points – fees you pay up front to lower the amount spent on interest. Although purchasing discount points can save money over the long run if you stay in your home for many years, it also can significantly drive up your initial costs. One point equals 1% of your mortgage. So if you buy a home for $350,000 and purchase just one rate-lowering point, you’ll have to spend $3,500 right away.

The type of mortgage you take out also can affect your interest rate. For example, you might be offered a lower rate on an adjustable rate mortgage (ARM). However, your ARM rate will fluctuate over time in tandem with the benchmark interest rate that your mortgage is tied to, forcing you to adjust your monthly payments. If interest rates rise significantly, you could get stuck with a higher payment than you can afford. A fixed-rate mortgage, on the other hand, might look pricier on paper, but the rate will stay the same throughout the life of the loan.

When you’re comparing loans side by side, always compare APRs. The APR figure takes into account all of your annual costs, including interest payments and fees, and is a good measure of a loan’s affordability.

3. Are the fees negotiable?

Before you bypass a particular lender, ask whether it’ll work with you on lowering some of its charges. A lender that seems overpriced at first glance might be open to reducing certain fees or matching a competitor’s lower rate.

Instead of comparing lenders solely on their initial quotes, take the time to follow up and see how willing they are to negotiate. Don’t hesitate to show them other loan offers, either. A lender might be more flexible with its pricing if it sees that a competitor is offering a better deal. If you have a solid credit score and healthy financial reserves, you’re likely in a good position. Lenders will know that you have plenty of options and might be more willing to compete for your business.

Be careful, though: There’s a good chance you’ll have to make some trade-offs to decrease certain charges. For example, a lender might be willing to lower your closing costs, but in exchange, they might want to bump up your interest rate. Before you settle on an offer, take the time to calculate all the expenses and consider whether lower costs now outweigh higher expenses in the long run.

You’ll also want to think about your other long-term expenses and whether you’re ready to buy a house now. For example, if you don’t have enough money saved for a 20% down payment (on top of all your other fees and expenses), the lender might require you to buy private mortgage insurance (PMI) which will add to your monthly mortgage payment.

If you’re stretching your budget to the point that every additional charge is causing stress, pause the buying process altogether or choose a less expensive property.


4. Do I want to work with this lender?

Your home is a big investment, and you’ll likely be working with this lender for a long time. In addition to pricing, you’ll want to know your lender’s reputation for customer service and its customer benefits. You might find that personalized service or compassionate and quality advice is worth slightly higher fees. Similarly, a lender that offers the lowest rates also might generate lots of complaints from dissatisfied customers.

Before you fall in love with a lender’s offer, research the business thoroughly. Poke around on the website and read as many reviews as you can. For example, if you value speed and efficiency, look for a lender with a reputation for those specific attributes.

In addition, ask friends and family who’ve recently bought homes to share their experiences. Talking to people you trust will point you toward or direct you away from particular lenders.

The bottom line

The relationship with your mortgage lender could be one of the longest relationships of your life, so it’s crucial to do your research before you commit. Consider interest rates and fees. Look at the lender’s reputation and customer service. The best mortgage for you is the one that you’ll be satisfied with for years to come.