How to shop for a home loan

Step 1: Get quotes from multiple lenders

Start by gathering quotes from different lenders so that you can compare the numbers and see who can give you the best deal. You can get a home loan quote online, over the phone, or in person. Mortgage rates change daily due to fluctuations in the economy, so try to get all of your quotes on the same day.

How many quotes should I get for a home loan?

Get quotes from at least three different lenders or mortgage brokers. When shopping for the right lender, look for low rates, good reviews, and a high level of knowledge and availability.

At Clear, we recommend using our online quote builder to start. You can get a detailed yet easy-to-read home loan quote in just a few minutes. If you have any questions, simply reach out to our team of loan experts. We’ll be happy to talk you through it.

What’s the difference between a quote and an estimate?

A home loan quote is a noncommittal look at what a lender can offer you regarding rates, fees, and options for your mortgage. A quote is not legally binding and is based on current market rates, which change day to day. It provides useful information to help you compare lenders and decide where to apply for a home loan.

A Loan Estimate, on the other hand, is a legally binding document you’ll be asked to sign after applying for a home loan. It includes important information and details about the specific loan that you’re applying for, such as the estimated interest rate, closing costs, monthly payment, taxes, and insurance. Provided within 3 days after you apply, the Loan Estimate reflects what the lender expects to offer you—if you decide to go forward with your application.

Step 2: Compare home loan quotes

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Once you have a few mortgage quotes in hand, it's important to know how to compare them. Here’s an overview of the various components of a quote—including rates and fees—and how to choose the best loan for you.

Components of a quote

A home loan quote generally includes the following:

• Loan type – Fixed or adjustable rate mortgage (ARM)
• Loan amount – How much money you’re borrowing
• Loan term – How long it will take to pay off the loan
• Interest rate – Yearly rate you pay to borrow money 
• Fees – Closing costs and other fees (also called origination fees)
• APR – Annual percentage rate that combines interest rate plus fees
• Monthly payment – How much you’ll owe each month

Interest rate vs. APR

There are two rates associated with a mortgage: interest rate and annual percentage rate (APR). It’s important to understand the difference between the two.

Interest rate is the yearly rate a lender charges you to borrow money. This directly affects your monthly payments and how much interest you’ll pay over the life of the loan. The higher the interest rate, the higher your monthly payments will be. The interest rate does not include fees or points. 

Annual percentage rate (APR) combines the interest rate and various fees into a single rate. APR is based on the total cost of the loan, with two components: 

1. Interest rate
2. Additional costs to originate the loan

APR is supposed to make it easier for borrowers to compare different loan options. However, it’s often a source of confusion. 

The APR will almost always be higher than the interest rate, because it’s a combination of the interest rate and additional costs, even if you are not paying them. For example, in a “no-cost” or “no-closing-cost” mortgage, any fees covered by the lender are still used to calculate the APR—which makes it higher. Mortgage insurance is also included in the APR, so that inflates it, too.

How to compare mortgage quotes

When comparing quotes from different lenders, pay close attention to the interest rate and fees. While APR was designed to make it easier for borrowers to compare loan options, it is not always a true indicator of what kind of deal you’re getting. APR can be skewed by adding or excluding certain fees.

A good rule of thumb is to calculate the total payments + fees for each loan option. This will show you how much you can save over the life of the loan by choosing one option over the other. (See example below.)

Additionally, you’ll want to consider your individual financial situation—including cash flow and major life events—to determine the best loan for you. For example, is it worth it to pay higher fees upfront in exchange for a lower rate? Or is it too risky for you at this time?

Example home loan comparison

Let’s compare these five quotes for a 30-year fixed rate home loan:

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In this example, Loan #5 provides the most savings over a 30-year term. However, the long-term savings potential comes at a significant cost upfront ($11,000). Whether or not it’s worth it to pay those higher fees at closing depends on your individual situation.

Be extra careful not to drain your savings by choosing a loan with high closing costs—or by making a large down payment—if you expect any of these life events in the next 5 years:

• Marriage
• Divorce
• Birth of a new child
• Job loss or salary decrease
• Relocating for a job (or other reason)
• Becoming an empty nester
• Retirement

Step 3: Choose a lender

When shopping for the right lender, look for low rates and fees, good reviews, and excellent customer service. Ask your real estate agent or friends and family for recommendations based on their personal experience with certain lenders or brokers. Choose a lender whose staff is available on evenings and weekends, has a high level of knowledge and experience, and has a reputation for going the extra mile for their customers. 

Why choose Clear Loans?

At Clear, our goal is to educate and guide you through the entire process, and to keep as much money in your pocket as possible. We are a low-cost lender, meaning we keep our overhead low and use technology to streamline the home loan process. Because we run our operations very efficiently, we’re able to offer highly competitive rates and fees. On top of that, we’re dedicated to earning your trust and providing a five-star service experience.

Ask a loan expert: Top tips for comparing home loans

We asked our veteran team of loan experts to answer some frequently asked questions and share their advice on how to shop for a home loan. Here’s what they said.

What are some good rules of thumb for comparing home loans?

• Get quotes from three different lenders
• Look at the numbers carefully
• Don’t fall for gimmicks
• Verify each lender's experience and reviews
• Consider upfront costs vs. long-term savings
• Keep your financial goals in mind

Is it worth it to shop for a mortgage?

Yes. Even a slightly lower interest rate can lead to significant savings over the life of your loan, so it’s worth it to shop around. To find the most competitive rates and fees, look for a low-cost lender like Clear.

Does it hurt your credit score to shop for a mortgage?

No. Multiple credit checks within 45 days are counted as one credit pull, because lenders can assume you are only buying one property. Plus, you can request and compare home loan quotes without actually applying for a loan. 

When you use Clear’s online quote builder, we won’t check your credit at that point. Rather, we’ll build your quote based on the estimated credit score you provide. When you decide to apply for pre-approval or apply for a home loan, then we’ll do a thorough credit check.

What should I look for when shopping around for a loan?

Look at the numbers carefully—especially the interest rate and fees. Don’t be distracted by promos and gimmicks. Lenders will sometimes shift around costs and fees to manipulate the APR and make a loan look more appealing. If a mortgage offer or rate quote seems too good to be true, take a closer look at the line items.

At Clear, we’re all about transparency—no gimmicks, no tricks. We line out all the costs and fees to give you the most accurate and detailed home loan quote possible, based on the information you provide. We believe that a more informed borrower will always choose Clear Loans.