A Guide to the Mortgage Offer Process

Securing a mortgage offer is an important step in the homebuying process. A mortgage offer represents a formal agreement between a mortgage lender and borrower and outlines the terms and conditions of a potential home loan. Learn more about the mortgage offer process and its key components to make the best decision for your financial situation.

Mortgage Offer vs. Mortgage in Principle

While related, a mortgage offer and a mortgage in principle serve distinct purposes in the mortgage application process. A mortgage in principle is a lender’s preliminary indication of their willingness to lend based on an initial assessment of a borrower. This will provide an estimate of the amount you may be able to borrow.

A mortgage offer, on the other hand, is a formal and binding commitment to provide a specific loan amount under defined terms.

How to Compare Mortgage Offers

Once you receive a mortgage offer, you have the opportunity to review the terms and conditions before deciding whether to accept or reject the offer. When deciding whether you should accept a mortgage offer, there are a few important components to consider to determine if the offer is best suited for your individual circumstances.

See the chart below for some key aspects to consider when evaluating your mortgage offer:

Warning Signs of Mortgage Scams

It can be tough to separate fact from fiction when evaluating mortgage offers. Sometimes the offers you get in the mail or online come from companies that don’t have your best financial interests at heart.

Here’s a look at four signs a mortgage offer might be too good to be true:

1. Extremely low rate: Lenders might show you an incredibly low interest rate but obscure the fact that it’s for an adjustable-rate mortgage (ARM). These tend to feature low upfront rates that can increase over time. If you’re focused on a fixed-rate mortgage, scour the fine print to ensure the low rate you’re seeing isn’t for an ARM.
2. Vague or unclear loan type: Some mortgage offers aren’t upfront about the type of financing being offered. Veterans might not be able to tell whether it’s a conventional mortgage, a VA loan, another government-backed mortgage or something else entirely.
3. No closing costs: Beware any mortgage offer that claims there are no closing costs. There are always going to be closing costs with getting a mortgage, it’s just a matter of how they get paid. For example, on a purchase loan, the lender might receive a rebate for locking you into a higher interest rate than you might otherwise qualify for and then use some of that money to pay the closing costs.
4. No required documentation: No-documentation mortgages played a role in the housing collapse more than a decade ago. They’re much less prevalent today, in part because of regulations and restrictions that took effect in the wake of the Great Recession. However, some lenders might still tout your ability to close on a loan without verifying key information.

How to Accept a Mortgage Offer

Accepting a mortgage offer involves confirming your understanding and agreement with the lender’s terms and conditions. Typically, this process is as simple as signing the document and returning it to the lender. Some lenders may require additional documentation to finalize your mortgage offer.

Navigating the mortgage offer process requires careful consideration, identifying potential red flags and knowing how to evaluate and accept an offer. By understanding these key components, you can accept a mortgage offer with confidence.