5 of the best mortgage lenders for 2021

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Our picks for the best mortgage lenders feature a smooth application process and quick closing times, based on Credible lender reviews. (iStock)

Not all mortgages are created equal. The lender you choose can have a significant impact on your loan — influencing everything from the interest rate you pay, the cash you’ll need to bring to the closing table, and how long it takes for you to get the keys to your new home.

The best lender for you depends on your financial situation and what you’re looking for in a mortgage. However, the best mortgage lenders do have a few things in common, like low interest rates, good customer service, transparent processes, and speedy closing times. Here are a few lenders you should consider.

5 best mortgage lenders to consider in 2021

The real estate market is booming in 2021. With interest rates at historically low levels and the economy returning to full strength after the COVID-19 pandemic, home sales have increased by double-digits across the country, according to the National Association of Realtors (NAR). The NAR also reports that sellers are now getting an average of nearly five offers before the home is sold.

Here are our picks for some of the best mortgage lenders to work with in 2021, based on Credible lender reviews. With Credible, you can see how much home you can afford and instantly generate a pre-approval letter.

Quicken Loans

Quicken is the largest mortgage lender in the country, for good reason. Here’s what sets Quicken Loans apart:

Availability: All 50 states
Flexible loan terms: You can choose a fixed-rate mortgage of any length from eight years to 30 years
Loan options: Fixed-rate, adjustable rate, conventional, FHA, VA and jumbo loans
Minimum credit score: 580 for FHA loans
Minimum down payment: 3% on conventional loans

Quicken Loans is a Credible partner lender.

Wells Fargo

One of the nation’s largest retail banks is also a major mortgage lender. Here’s what else sets Wells Fargo apart:

Availability: 7,800 locations across the country
Loan options: Fixed-rate, adjustable rate, conventional, FHA, VA, and jumbo loans
Minimum FICO credit score: 580 on FHA loans.
Minimum down payment: 3% on conventional loans

loanDepot

This lender advertises closing times that are 50% faster than the industry average. Here’s what else sets loanDepot apart:

Direct lender, meaning they manage the entire loan process.
Availability: All 50 states, 200-plus locations around the country
Loan options: Fixed-rate, adjustable rate, conventional, FHA, VA, and jumbo loans
Minimum credit score: 620 for conventional loans, 580 for FHA loans.
Minimum down payment: 5%, or 3.5% for FHA loans.

loanDepot is a Credible partner lender.

Better.com

Better.com mortgage is known for a heavily automated, fully online mortgage application. It charges no lender fees. Here’s what else sets Better.com apart:

Availability: Licensed in 44 states and the District of Columbia
Loan options: Fixed-rate, adjustable-rate, conventional, FHA, and jumbo loans
Minimum credit score: 620
Minimum down payment: 3% on fixed-rate loans, 5% on adjustable-rate loans

Stearns

Online reviews of Stearns say the loan application process is simple, even if your financial situation isn’t. Its "Smart Start" program offers first-time homebuyers a lower monthly payment on their fixed-rate loan for the first two years. Here’s what else sets Stearns Lending, LLC apart:

Availability: 49 states (excluding New York) and Washington, D.C., branches in 23 states
Loan options: Fixed-rate, adjustable rate, conventional, FHA, VA, and jumbo loans
Minimum credit score: 620 for conventional loans, 580 for FHA loans (must have a 3.5% down payment), and 660 for jumbo loans
Minimum down payment: 3% on conventional loans

Stearns is a Credible partner lender. You can compare rates from Stearns and other mortgage lenders through Credible.

How mortgages work: Things to know

Mortgages can seem complicated, especially if you’re a first-time homebuyer. Here are a few things to keep in mind as you search for a home loan.

What are the main types of mortgages?

Conventional loans: These loans are not part of a government program, and tend to cost less than other options like FHA loans. A conventional loan can be the best option if you have a solid credit score. These loans can be "conforming" or "nonconforming."
Conforming: Conforming loans adhere to rules set by the federal government and Fannie Mae and Freddie Mac. The maximum size for these loans is $548,250 in most parts of the country, although in costlier counties it may top $822,375. This is the most common type of mortgage loan.
Nonconforming: Nonconforming loans include jumbo loans, as well as some niche loans for people with unusual financial circumstances — including self-employed people or new doctors. Jumbo loans have higher limits than conforming loans, often $1 million or more depending on the lender.
FHA: These loans from private lenders are insured by the Federal Housing Administration and open to people with lower credit scores than conventional loan customers. If you have negative items in your credit history, such as a bankruptcy or foreclosure, and not much money for a down payment, an FHA loan can be your best option.
VA: These loans, backed by the Department of Veterans Affairs, are for active-duty military service members, veterans and their family members. People who are eligible for a VA loan can often buy a home with no down payment.
USDA: These loans are designed for low- to moderate-income people buying homes in qualifying rural areas. The Rural Housing Service both makes and guarantees USDA loans, and provides zero-down-payment options.

Fixed rate vs. adjustable rate

Many mortgages are available as fixed rate or adjustable rate loans. With a fixed rate loan, the interest rate you pay is set when you take out the mortgage and won’t change over the life of the loan. Your monthly principal and interest payment will also stay consistent until you finish repaying the mortgage. However, if interest rates fall, the only way you’ll get to tap that benefit will be to refinance your fixed rate mortgage at a lower interest rate, if you can.

The interest rate on an adjustable rate loan can go up or down. When you take out this type of mortgage, you’ll have a set interest rate for a period of years — from one to as many as 10. Then the interest rate you pay will change based on market conditions.

For example, with a 7/1 ARM, your interest rate will be fixed for seven years and then adjust every year (the "1" in the name of the loan). All adjustable-rate mortgages by law have a cap on how high the interest rate can go.

Since the initial interest rate on adjustable-rate loans tends to be lower than a fixed-rate mortgage, these can be a good option for people who know they will be moving in a short period of time.

HOW TO BUY A HOUSE IN 2021: 8 TIPS FOR WINNING THE COVID HOMEBUYING SEASON

30-year, 15-year, 10-year: Which to choose

The term of a loan is the period of time you’ll spend paying it back. The most common loan terms are 30 years, 20 years and 15 years, though other lengths are available.

Typically, the shorter the term of the loan, the lower the interest rate you’ll pay. However, shorter terms also typically require higher monthly payments, since you’re making fewer of them. Here’s a quick breakdown of some of the most common loan terms:

30-year mortgage: This is the most common loan term, and usually offers the lowest monthly payment amount. However, you’ll pay a higher interest rate and more interest in total over the life of the loan.
15-year mortgage: These loans tend to have lower interest rates than 30-year mortgages, and you’ll pay much less in total interest over the life of the loan. Your monthly payment will be higher, though.
10-year mortgage: These mortgages are less common, probably because they tend to have higher monthly payments. But they also usually have the lowest interest rates and least amount of interest paid over the course of the loan.

How mortgage rates are determined

Interest rates can fluctuate from day to day, and change even more dramatically over time. However, the specific interest rate you’re offered when you apply for a mortgage is also influenced by your personal financial situation. Your interest rate can vary based on a number of factors. Here are the most common:

Credit score: Generally, the better a credit score you have, the lower the interest rate you can receive.
Your down payment: The more money you put down upfront on your home, the lower the interest rate you may receive.
Your loan term: The longer the term of your loan, the higher the interest rate you typically will receive. And, in the opposite vein, the shorter the loan term, the lower your interest rate will likely be.
Your type of loan: Some types of loans come with lower interest rates. Conventional loans can have lower interest rates than FHA loans, for example.
Your type of interest rate: Fixed rate loans may be more expensive initially, but adjustable-rate loans can increase in price after the initial period ends.

Other factors that can affect your interest rate include the location of your home and the home price. Pay close attention to the interest rate when shopping for a mortgage. When you’re spending hundreds of thousands of dollars, even a small fraction of a percent can equate to thousands of dollars in interest over the life of your loan.

What to know about closing costs

Closing costs are upfront fees you’ll pay when you take out a mortgage. You might pay for these in cash upfront, by rolling them into your loan amount, or through lender credits where you pay a higher interest rate.

Closing costs often include origination fees paid to the lender to compensate them for granting you the loan. Other common closing costs include:

Appraisal fees
Title insurance fees
Taxes
Prepaid insurance and homeowners association fees

You may also choose to pay "points" at closing. This is a fee you pay upfront in exchange for a lower interest rate. This can be a good option if you know you’ll be staying in the home for a long period of time.

The cost of a point is determined by the loan amount. Generally, one point equals 1% of the total loan, so a point on a $200,000 mortgage would cost $2,000. However, you don’t necessarily have to buy points in round numbers. How much each point reduces your interest rate depends on the lender. Some lenders drop your rate more per point than others.

The opposite of points are lender credits. Your lender covers some or all your closing costs in exchange for charging you a higher interest rate. This can be a good strategy for reducing your upfront costs. You can also negotiate with the seller of the home to cover a portion of your closing costs — although this may be difficult to do in a seller’s market.

Mortgage FAQs

Why does my credit score matter when buying a house?

The lower your credit score, the more of a risk a lender may deem you to be when deciding whether to issue you a mortgage. Because of that risk, the lender will typically charge you a higher interest rate. Many loan programs also have minimum credit scores to qualify.

What credit score do I need to buy a house?

This depends on the type of loan you’re considering. For conventional loans, the minimum credit score is typically 620. On an FHA loan, you can have a credit score as low as 500, but you’ll face a higher down payment requirement. You won’t be eligible for an FHA loan — the most forgiving when it comes to credit score requirements — with a score below 500.

What’s the difference between APR and the interest rate?

The interest rate on a mortgage reflects the price you pay each year to borrow the money. The APR, or annual percentage rate, takes into account your interest rate as well as other fees and charges you pay. Because of this, APR can give you a better picture of the total cost of borrowing money.

Should I choose my mortgage based on APR?

When you’re shopping for a mortgage, looking at the APR for each loan offer you receive can help you make an apples-to-apples comparison of the full cost of the loan. However, keep in mind the terms of the loans you’re looking at. You don’t want to compare the APR of an adjustable-rate mortgage to that of a fixed-rate mortgage, for example.

Credible makes it easy to compare rates from multiple lenders.

How much of a down payment do I need?

Different loan programs have different down payment requirements. For all loans, the larger the down payment you make, the more likely you are to be approved — and the lower the interest rate you’ll likely receive.

Conventional loans: As little as 3%, but some lenders require 5% to 15%. If you put less than 20% down, though, you typically will need to pay for private mortgage insurance.
FHA loan: 3.5% down payment.
VA loan: No downpayment requirements
USDA loan: No downpayment requirements

What is private mortgage insurance?

Private mortgage insurance, commonly known as PMI, protects your lender if you fail to make your mortgage payments. PMI is typically required on a conventional loan if you make less than a 20% down payment. The most common way to pay PMI is as part of your monthly mortgage payment.

What are first-time homebuyer programs?

First-time homebuyer programs refer to subsidies from federal, state, and local governments that help people buy homes for the first time. These often include grants or zero-interest loans to help cover down payments and closing costs. You can learn more about first-time homebuyer programs at USA.gov.