Applying for a Mortgage
How important is it to comparison shop for loans?
Whether you do the footwork on your own or hire someone competent to help you doesn't matter. But you must make sure that this comparison shopping gets done. Suppose that you're in the market for a 30-year, $100,000 mortgage. If through persistent and wise shopping you're able to obtain a mortgage that is, for example, 0.5 percent per year lower in interest charges than you otherwise would have gotten, you'll save about $14,000 over the life of the loan (given approximate current interest rates). Double those savings for a $200,000 mortgage.
Although we encourage you to find the lowest-cost lenders, we must first issue a caution: Should someone offer you a deal that is much better than any other lender's, be skeptical and suspicious. Such a lender may be baiting you with a loan that doesn't exist or one for which you can't qualify.
What is loan prequalification?
Prequalification is an informal discussion between borrower and lender. The lender provides an opinion of the loan amount that you can borrow based solely on what you, the borrower, tell the lender. The lender doesn't verify anything and is not bound to make the loan when you're ready to buy.
What is loan preapproval?
Preapproval is a much more rigorous process than prequalification, which is why we prefer it if you have any reason to believe that you'll have difficulty qualifying for the loan you desire. Loan preapproval is based on documented and verified information regarding your likelihood of continued employment, your income, your liabilities, and the cash you have available to close on a home purchase.
Why should I get preapproved?
Going through the preapproval process is a sign of your seriousness to house sellers -- it places a sort of a Good Borrowing Seal of Approval on you. A lender's preapproval letter is considerably stronger than a prequalification letter. In a multiple-offer situation where more than one prospective buyer bids on a home at the same time, buyers who have been preapproved for a loan have an advantage over buyers who haven't been proven creditworthy.
Should I expect to pay for preapproval?
Lenders don't charge for prequalification. Given the extra work involved, some lenders do charge for preapproval. Other lenders, however, offer free preapprovals to gain borrower loyalty. Don't choose a lender just because the lender doesn't charge for preapproval. That lender may not have the best loan terms.