Finding the perfect house is only half the challenge of purchasing a new home. The other half involves figuring out how to pay for it. Most buyers make a down payment and use a mortgage loan to cover the rest. Although loan products vary according to lender, understanding the basics will help you choose the loan that best fits your goals and your budget. From application to closing, taking out a mortgage usually takes about four to six weeks.

Shopping for Loans

Many mortgage loan representatives work for direct lenders — companies that originate loans — but some are mortgage brokers who match borrowers with lenders. Some brokers operate independently and deal with many lenders, and others work for a single lender. Brokers earn commission from the borrower or the lender for loans they arrange. Despite this extra cost, a broker who works with a variety of lenders may be able to negotiate a better loan for you than you could negotiate on your own. Shop for a loan by contacting several brokers and lenders, and comparing their interest rates, loan costs and details.

Loan Types

Fixed-rate and adjustable-rate mortgages are the two major types. With a fixed-rate loan, the interest rate stays the same for the life of the loan. A major benefit is that your payments are predictable — you’ll pay the same amount each month — and your interest rate won’t change even if market rates increase. On the downside, your rate also stays the same even if market rates decline. An adjustable-rate loan is tied to a financial index. You pay a specified amount above the index. As the index rises and falls, so does your interest rate, and thus your payment. The lender creates a reset schedule that determines how frequently your loan payments change and limits how much your interest rate can increase during each reset. Whether you use a fixed-rate or adjustable-rate loan, you’ll have several loan lengths, or terms, to choose from. The most common terms are 30 or 15 years.

Costs to Consider

You’ll pay a variety of costs associated with your loan. Some relate directly to the loan, such as the origination fee, interest, and discount points — which consist of interest you pay in advance in exchange for a lower interest rate. You may also pay mortgage insurance if your down payment is less than 20 percent of the purchase price, or you take out an insured loan. Alternatively, you’ll pay a funding fee if you use a guaranteed loan. Other fees result from your lender’s requirements. These include an appraisal, title insurance for the lender, and, in many cases, a home inspection. Attorney fees, fees for title work, transfer tax, and fees for recording the mortgage and the deed aren’t part of your loan fees, per se, but you need to consider them when determining how much cash you’ll need at closing. You’ll receive a Good Faith Estimate of closing costs shortly after applying for your loan. You can compare estimates of these costs from more than one lender before committing to a loan.

Applying for a Mortgage

The first step in the loan application process is to seek a prequalification, which is a preliminary credit decision based on your credit score and the financial information you share with the lender. It tells you how much you can borrow and at what interest rate. You’ll need a prequalification in order to submit an offer on a home in many cases, so you should contact a lender for one before you start house hunting. This is also a good time to gather the documentation you’ll need for the loan. Plan to submit two years’ worth of tax returns and your most recent few paycheck stubs. The lender will also ask you for proof of all other income as well as investment statements. You’ll complete a formal loan application after a seller accepts your offer to buy a home.

Underwriting and Closing

Underwriting is the process by which the lender verifies all of your credit and income information, and assesses the home appraisal, inspections and title work. Once the lender is satisfied that you and the home you’re buying are a good risk, it issues a loan commitment. The commitment might have some contingencies. Contingencies are things you need to comply with for the loan to close, and they usually include requests for additional information or missing documents. The lender declares your loan clear to close after the contingencies are met. You’ll close the loan, sign the papers, and pay your closing costs at the same time you close the sale of your new home.