Getting Started: Mortgage Pre-Approval
The first step in your home buying journey is securing a mortgage pre-approval. This crucial step helps you understand your budget and shows sellers you're a serious buyer.
How to Find the Best Mortgage Rates
We recommend using Bankrate.com to quickly compare rates from different mortgage companies:
- Visit Bankrate.com and click on "Mortgages"
- Select your preferred loan term (30-year, 20-year, or 15-year mortgages)
- Adjust the filters on the left to match your specific circumstances
- Click "More filters" and select "0 Points" to first compare loans without points
- Sort results by "Low Rate" in the top right to view the most competitive options
The Pre-Approval Process
After finding a mortgage company with a competitive rate, you'll begin the pre-approval process. The mortgage company will require documentation and information including:
- Employment history and current work status
- Salary and income verification
- Credit check (which will involve a hard credit inquiry)
- Details about your assets and debts
- Personal identification information
Once reviewed, the mortgage company will issue a pre-approval letter indicating how much they're willing to lend you. This document is essential as you'll share it with your real estate agent and include it with any purchase offers you make.
From Pre-Approval to Closing
If your offer is accepted and the home passes inspection, the mortgage process continues:
- The mortgage company will conduct an independent appraisal to determine the home's value
- If the appraisal meets or exceeds the purchase price, the mortgage company will move toward final approval
- Final approval involves verifying your current employment status and reviewing your tax returns
- A closing agent will coordinate with your mortgage company to prepare final documents
- At closing, the agent will manage the transfer of funds to the seller, completing your home purchase
What About Mortgage Brokers?
While mortgage brokers can help navigate the lending process, they typically cannot offer lower rates than going directly to mortgage companies. This is because brokers serve as middlemen who earn commissions on top of the mortgage company's rates. By using comparison tools like Bankrate.com, you can find competitive rates directly and avoid these additional costs.
A Note on Mortgage Points
Mortgage points are fees you pay upfront to reduce your interest rate. Each point typically costs 1% of your loan amount and lowers your rate by about 0.25%. While points can save money long-term if you keep the loan for many years, they require a larger initial investment. We suggest comparing options in an apples to apples comparison i.e. without points and then with points if you prefer.