Buying Your Home

Shopping for a Loan and Obtaining Loan Prequalification

Overview Mortgage Products Mortgage Lender Loan Prequalification

The process of shopping for a loan is extremely important, but it often comes up at the same time you are shopping for a house. The entire experience can be overwhelming at times. That's why we separate the home shopping process from the loan shopping process.

As you dig into your financial picture and discover what kinds of loans you qualify for, we help you understand:

  • How to choose a mortgage product
  • How to choose a mortgage lender
  • How to obtain loan prequalification

Obtaining a loan is very complicated, with a variety of factors going into the mortgage lender’s decision. We help demystify the process and empower you with information about the industry.

How to Choose the Right Mortgage Product

The right mortgage product for you depends on your budget as well as your short- and long-term financial future. In general, there are three different types of mortgage products:

  • Fixed-rate home loans
  • Adjustable-rate mortgages (also known as ARMs)
  • Interest-only jumbo loans

A fixed-rate home loan has a set interest rate that does not change over time. The most common types of fixed-rate home loans are 15 year and 30 year mortgages, though they can be longer or shorter. This is a standard loan product and usually requires a significant down payment.

An adjustable-rate mortgage (ARM) has a fixed interest rate for a period of time, such as 3, 5, or 7 years. After that time, the interest rate adjusts to the economic climate of the time. So if interest rates are low when you obtain your mortgage, and they go up over the time period of your ARM, you are likely to pay a higher interest rate when your ARM expires.

An interest-only jumbo loan is typically for mortgages in excess of $625,000. They also have a fixed time period for the interest rate that adjusts when that time period expires.

How to Choose the Right Mortgage Lender

The mortgage business is cutthroat. In fact, so-called innovations in the mortgage industry were a direct cause of the 2008 recession. Back then, credit was easy to come by, and it was difficult to understand how these mortgage products works. Have things gotten better? Not really.

Today, choosing a mortgage lender is a process that involves:

  • Understanding the mortgage products that the lender offers
  • Assessing the lender’s reputation locally
  • Building trust with the lender

Oftentimes, people will work with the nearest possible lender, either as a referral from their bank or from a friend or family member. We help you uncover the right questions to ask the reference, as well as the right questions to ask the lender before starting the loan process.

Don’t be fooled by brand-name recognition, fancy titles, or urgent advertising. Much like shopping for a car, shopping for a mortgage requires patience and trust.

How to Obtain Loan Prequalification

Getting pre-qualified for a loan is an important first step before shopping for a home. The prequalification process is straightforward, and you’ll disclose key financial details to the lender of your choice. They will return with an estimate of what you can afford and how much of a loan you qualify for. In turn, this helps you narrow down your home choices based on a realistic budget straight from your lender.

Prequalification is a speedy first step that you can achieve before meeting with a real estate agent. But prequalification isn’t foolproof. Your lender is merely providing an estimate based on information that you provide. The actual mortgage process is much more involved, with credit checks, income verifications, and more.

If you want to speed up the shopping process, consider mortgage pre-approval. When you are pre-approved for a mortgage, you fill out a full mortgage application and the lender goes through significantly more diligence. At the end of this tunnel, you emerge with a conditional commitment from your lender to provide a loan up to a certain amount. This also speeds up the process of closing by taking out some of the time-consuming tasks (such as financial due diligence) and putting it before the home shopping process.