Mortgages

Overview

Whichever lender you use, the process of applying is generally similar: It involves completing an application and providing the documentation of your financial situation that the lender requests. Unless the lender waives them, there are also likely to be fees, such as an application fee, appraisal fee, title search and others, which you pay upfront.

The costs of borrowing from lenders serving the same geographical area may be similar at any one time, but they likely won't be identical. So it's smart to shop around for the best loan deal. You may want to start with your current financial institution, since there may be an advantage to being an existing customer, such as a slightly lower interest rate or lower fees. Then research what other lenders are offering for the same loan terms.

In the past, homebuyers chose the home they wanted first and then applied for a mortgage. But it's now possible and may be desirable to be pre-approved for a loan. This means you submit an application and go through the lender's qualifying process first—before you shop for a home. If you’re approved, the lender guarantees you can borrow up to a specific amount. Although there may be instances in which a lender will still not approve your loan application—for example, issues with the appraisal or title search—being pre-approved does allow you to enter the home-buying market knowing exactly how much you are qualified to borrow.

Another advantage of being pre-approved for a mortgage loan is that sellers may be more likely to accept your bid for their home. That's because sales contracts are often contingent on the buyer's ability to borrow and can fall through if a mortgage application isn't approved.

There is one caution: There's usually a fee for pre-approval, as there is when you apply for any mortgage. So you'll want to ask about fees and take this step only when you're committed to buy. You can also ask to be prequalified, which typically doesn't cost anything. In that case, a lender will give you a general sense of how much you're likely to be able to borrow, but does not guarantee you'll be approved. In both instances, be sure to understand how long your pre-approval or prequalification is good for, as they are not permanent.