You’ve saved a down payment, your credit score is in good shape, and you’re ready to start house shopping. Next step: thinking about a mortgage. As we’ve covered a mortgage is just a specific type of loan for buying a home. The basic idea is the same as all loans – you borrow money and agree to pay it back over time plus interest. But there are different phases to applying for a mortgage depending on where you are in the home shopping process.
Pre-approval. Mortgage pre-approval is a common first step to getting a mortgage, and shows sellers you’re serious about buying a home. You don’t have to have a specific home picked out yet, you just fill out an application with one or more lenders and give them some documentation about your finances. This will be a “hard” pull on your credit so it can lower your credit score a few points. If you shop around for pre-approvals with multiple lenders try and do it all within a 2 week period, that will limit the impact the multiple requests have on your credit score. The lenders who pre-approve you give you a letter indicating that, based on what they know, they would give you a mortgage of an approximate value. A pre-approval is NOT a guarantee you’ll get a mortgage. And it does not mean you have to use that mortgage company. It is simply an indication from a lender that you’ve got a good chance of getting a mortgage from them along with general details about that mortgage. If you make an offer on a home, the pre-approval letter is usually submitted along with the offer. The amount you’re pre-approved for is NOT an indication of what you should spend. Your price range is YOURS to decide, not the mortgage companies.
Comparing loan offers. Once you’ve picked out a home and have had your offer accepted, you can apply for mortgages for that property with several lenders. A three page document called a Loan Estimate is the best way to compare offers. It’s a standardized form that the lender must provide within 3 days of submitting your application. It outlines the amount of the loan, the interest rate, estimated cash needed to close, estimated monthly payments, and more. Loan Estimates are standardized to make comparisons between what different lenders are offering you easier.
Intent to Proceed. Up to this point you’re still shopping for a loan. No matter how much work they do preparing loan estimates, you’re not obligated to use any particular lender. In fact you can freely negotiate with any of them based on the other estimates you’re getting. Intent to proceed is when things get serious. This is when lenders can begin charging you fees, and the full loan underwriting process really gets going. You have indicated that you would like a mortgage, from this company, to buy this specific home. More questions, more documents, more forms. The end goal of this step is you getting this mortgage and buying this home. But remember that until you sign at the closing you can always walk away if you change your mind.