How to choose a home loan and lender: A step-by-step guide

1. Set a budget and determine monthly housing expenses.

Before you speak to a lender and start comparing mortgage options, it helps to get clear on what you can comfortably afford each month by setting up a budget and determining your total housing expenses.

First, look at your income, what you’re currently paying in rent or mortgage, your monthly bills, your savings amount and goals, and how much disposable income you’d like to have left over. Then, ask yourself: “What amount can I comfortably afford to spend on housing with my current income and expenses?”

This budget amount you set aside each month will include more than just the mortgage amount. Don’t forget to budget in costs like utilities and homeowners insurance for a better picture of your total monthly housing expenses. It's okay to use placeholders or estimates at this point to get an idea, since you won’t have final numbers. You can also find free budget and mortgage calculators online to help with this step.

This is also a good time to look at your savings and get an idea of how much you have available to spend on your down payment. Different loan types and lenders may require different amounts upfront, so don’t count yourself out yet if a large down payment isn’t in the cards.

2. Compare lenders and talk to more than one.

Many first-time buyers feel like they have to pick the first lender they talk to. The reality is that it’s common to speak with several lenders to understand your options, compare rates, and get a feel for different service styles. This helps you:

• Compare mortgage options side by side

• See how each lender explains loan types and terms

• Understand differences in service, timelines, and available guidance

Talking with multiple lenders isn’t only allowed, it’s smart. A home loan is a long-term relationship, so it’s fair to ask yourself:

• “Does this lender explain things in a way that feels understandable?”

• “Do they answer my questions directly?”

• “Do they help me feel grounded and informed rather than rushed?”

Comparing will help you choose the partner who listens to your questions and keeps the process clear and comfortable.

At most Clayton locations, you’ll find a lender board with financing information provided by national and regional lenders. It’s there as a resource, if you need a place to start your research. Whether you explore new lenders or work with someone you already trust, what matters most is partnering with someone you feel comfortable with.

3. Research lenders by home type and home loan options.

If you have a home type or neighborhood in mind, you’re already a step ahead. By considering whether you want to build a modern manufactured home, purchase a move-in ready home on land, or live in a site-built neighborhood, you will be in a better position to select the provider and loan type that best meets your needs.       

Because not all lenders offer loans suited for every home type, it’s helpful to know what type of home you want first. If you have a specific home in mind, that’s even better. But many buyers get preapproved for a loan before selecting a specific home, and they simply lock in the right loan product later once they’ve selected the home they want.

Home loans and home build types:

• Conventional loans are available for site-built homes and can be an option for modern manufactured homes through private lenders, but with stricter rules and home foundation requirements.

• FHA loans are great for first-time homebuyers since they have lower credit score and down payment requirements and can be used for site-built and modern manufactured homes, with restrictions.

• USDA loans can be used to finance both traditional site-built and modern manufactured homes in certain rural and suburban areas for qualifying buyers and home locations.

• VA loans also are available for both traditional site-built and modern manufactured homes with similar restrictions for qualifying veterans, active-duty service members, and surviving spouses.

• Portfolio loans are another option through private lending and can offer more flexibility in loan requirements, like credit scores and down payments. These loans stay in the lender’s “portfolio,” meaning they are serviced by the same lender for the life of the loan.

 Read more about home loans in our mortgage guide →

Ultimately your chosen loan provider will advise you on your best mortgage options based on your finances, your credit profile, and your selected home type. Your home consultant can also inform you of how your home preferences could impact your loan choices.

4. Compare lenders by interest rates and available offers.

Now that you have an idea of your budget and different home loan options, you can begin comparing loan interest rates and offers across lenders.

You can easily start with a lending company you’re already familiar with, like where you currently bank, to get a preview of the process. You can also ask your Clayton home consultant to see their lender board to review a list of lender options to begin your search.

When searching for lenders online, many mortgage providers will promote their lowest interest rates, which are typically reserved for well-qualified borrowers. You should weigh the benefits of each offer and consider getting prequalified by multiple lenders to see what promotions and loan products you may be eligible for.

Once you’re in communication with a lending agent, you can ask to be walked through different home buying and lending scenarios. For example, ask your lender:

• “Do you have experience financing the type of home I’m interested in buying?”

• “How would a 15-year vs. a 30-year loan term affect how much I pay over time?”

• “What down payment is required for this loan program?”

• “What credit score range do you typically look for?”

• “How will my credit score affect my rate or loan options?”

• “How can I get prequalified or preapproved?”

5. Assess your financial readiness with prequalification.

Getting prequalified is a great next step. It can provide a clearer estimate of your potential eligibility and price range without damaging your credit profile. Because lenders evaluate information differently, it’s common and often helpful to speak with more than one lender as you compare options.

At this stage, lenders typically rely on self-reported information, such as income, assets, debts, and employment. It helps to have a general idea of your credit score, though you usually won’t need to provide supporting documentation yet.

Many lenders will request permission to review your credit as part of the prequalification process. In most cases, this is done using a soft credit pull, which does not affect your credit score. However, hard pulls are generally reserved for the more formal preapproval process and may cause a slight, temporary dip in your score. Because terminology and practices may vary, it’s a good idea to confirm whether the credit check will be a “hard” or “soft” pull before proceeding.

You can typically submit a prequalification request online by answering a short set of questions about your finances, contact information, and employment. Prequalification is not a commitment by you or the lender, and you can repeat this process later or with multiple lenders as you explore options.

As a next step, consider researching mortgage lenders online and in your area and making a short comparison list. Reviewing estimated rates, loan options, and customer experiences can help you find the best fit for your individual situation.

6. Get an idea of specific loan details, fees, and closing costs.

Once you’re prequalified, a lender can typically provide initial estimates of available loan options, including sample interest rates, loan terms, and estimated closing costs. These estimates can help you compare loan types and narrow down which options may best fit your goals and budget.

At this stage, the information provided still represents ballpark figures. Without a specific property, final purchase price, and completed application, lenders can only offer general scenarios, not finalized loan terms. Loan offers, incentives, and pricing are not confirmed until a specific home is chosen and you move forward with formal preapproval.

In general, it’s helpful to understand:

• Whether the interest rate is fixed or adjustable

• The annual percentage rate, which shows the interest rate plus certain lender fees

• The loan term, or length of time you have to repay the loan—often 15 or 30 years

• If the loan requires mortgage insurance or other added program costs

• How much you may need to contribute towards a down payment

• Estimated closing costs, which cover fees due at signing

You may choose to pause at this step to review your options, reassess your budget, or start shopping for a specific home in your estimated price range.

7. Move forward on preapproval with your lender of choice.

The next step in the home financing process is preapproval. At this stage, you’ll put all your research to use and apply with your lender of choice. Your lender will then verify your financial information and determine the loan amount you may qualify for, subject to final approval.

Working with your chosen lender, you’ll submit required documents, like pay stubs, bank statements, and tax returns, along with personal information, like your address and Social Security number. At this point you’ll typically authorize a hard credit pull so the lender can confirm your credit profile.

If approved, you may receive a preapproval letter, which confirms you meet the lender’s initial underwriting requirements based on the information reviewed. Preapproval is not a final loan approval and is still subject to conditions, such as an acceptable property appraisal, completing final underwriting, etc. But it gets you one step closer to your homeownership goals by completing an important milestone in the mortgage financing process.

You aren’t obligated to move forward with a lender or loan program until you complete the transaction and close on your home. However, as you move forward, it can be helpful to narrow your options to one or two loan programs as your top choices, so that pricing, terms, and documentation requirements become clearer as you progress toward closing.

8. Ask about the mortgage process from start to finish.

The mortgage process generally includes several key steps: application, underwriting, appraisal, approval, closing, and final paperwork. While the exact order and timing may vary depending on the loan type, property, and lender, a knowledgeable lender should be able to explain the typical process and what to expect along the way. Consider asking questions like:

• “What does your typical loan timeline look like from application to closing?”

• “Who will be my main point of contact?”

• “How and how often can I expect to receive updates?”

• “What documents or information should I prepare before I apply?"

Understanding expectations upfront can help reduce surprises and delays later on. Clear communication also builds trust. And when you’re choosing a mortgage lender, trust is critical.

Pick a lender who supports your home buying goals

Choosing a mortgage lender is a process, and each step helps you narrow your options and better understand what works for your budget and timeline. By asking questions, comparing loan programs, and understanding how each lender operates, you can make more informed decisions about your financing. That kind of preparation can help you move ahead with greater confidence and choose the financing path that best fits your future and long-term goals. For more tools and resources to support your planning, visit our Learning & support page.