How to Apply for a Mortgage

For many people, buying a home is the single largest investment of their life. It can be a wonderful experience and rewarding on many levels, aside from just monetary ones. Since most people do not have enough money saved up to buy a home, it is usually necessary to apply for a mortgage, which is a special type of loan that covers the entire cost of the home.

Types of Mortgages

There are many types of mortgages, but most are for 15 or 30 years, with a payment made each month towards the total amount of the loan. Each loan has an interest rate, with this being the percent of the loan that is being paid to the bank or loan holder. Fixed rate mortgages have an interest rate that remains the same over the entire length of the mortgage.

Variable Rate Mortgages or Adjustable Rate Mortgages(ARM) are a rather new loan device, which offers a lower initial interest rate, which is adjusted every few years. In theory, the interest rate could go up or down each time it is adjusted, but it is a good idea to plan on it always going up. Over the course of the ARM, there should be a set number that represents how high the interest rate can go up.

Many of those with subprime mortgages ended up getting ARMs that did not have a limit on how high they could go and were set to adjust every year, as opposed to every two or three years. As a result, these loans quickly became unaffordable. So, for those who interested in taking advantage of the low initial rate of an ARM, it is a good idea to do a great deal of research and make sure it would not be classified as subprime.

The Mortgage Application Process

Before a lender can tell you whether or not they will actually offer you a mortgage, it is necessary to complete a mortgage application. This consists of information about your bank, job, and personal history.

Many lenders will provide what is often called a pre-approval letter or a pre-verification letter, but these are usually not taken as seriously as actually being approved for a loan. This is because the loan company does not actually process the application at this point, but instead provides a estimate of what they could offer, providing the information provided is correct.

It is very important to be as honest as possible with your lender at all points, because lying won’t get you anywhere. Eventually, the loan company will run your credit and check your references, so while a lie might get a nice looking pre-approval letter, when it comes time to actually apply for the mortgage, the lie will become apparent.

It is also important to have an idea of what the going interest rates and mortgage terms are. This way, you will be able to compare prospective loan offers with the standard rate and determine whether it is a good deal or not. This is one reason that it is often a good idea to start with your bank. They will usually have a semi-competitive rate that is fairly indicative of the normal mortgage rates. Your bank can also often work quicker than other loan officers and might not even charge anything to check your approval.