You can apply for a pre-approved loan or wait until you find that perfect house before you apply for a mortgage. Pre-approval can save you time and stress once you’ve fallen in love with a house. Either way, the process is the same; just the timing of the steps is different.

Mortgage vocabulary can be confusing. For definitions of the terms you will hear in the process of buying a house, click here.

What Kind of Mortgage Should You Get?

All monthly house payments include the mortgage payment plus property taxes and insurance. The mortgage portion is made up of principal and interest. In the early years of your mortgage, most of your payment goes toward interest. As years go by, you begin to pay more principal and less interest. By the last year, almost all of your payment is toward principal, and only a small amount is for interest. Go to our amortization calculator to see how this works.

15-Year or 30-Year?

A 15-year mortgage will cost you a lot less total interest over the life of the loan. For example, a 30-year, $90,000 mortgage, with a rate of 8 percent, would cost $148,000 in interest. A 15-year mortgage at the same interest rate would cost $41,000. Use this calculator to compare the amount of interest you would be charged for a 15-year mortgage and a 30-year mortgage in the amount you would like to borrow.

Fixed-Rate or Adjustable-Rate?

Mortgages fall into two broad categories: fixed-rate and adjustable-rate. On a fixed-rate loan, the interest rate remains the same throughout the length of the loan. You know your monthly principal and interest payments won't ever change. Your total monthly payments will probably rise as property taxes and insurance premiums rise, but your payments, even down to the last one, are fairly predictable.

On an adjustable-rate mortgage (ARM), the interest rate varies. The starting interest rate is lower than the rate of a fixed-rate mortgage, but can increase (or decrease) a certain amount at specific intervals, usually once a year. There are normally two rate caps: one that limits how much the rate can be raised at each adjustment, and another that limits how much the rate can climb over the life of the mortgage. For example, the annual increase may cap at two percentage points and the lifetime increase at six percentage points. So a 6 percent ARM could climb to no more than 8 percent after the first year, and to no more than 12 percent over the life of the loan.

The ARM offers a lower interest rate, and therefore smaller mortgage payments, in the early years of the mortgage. On the other hand, the ARM is a gamble. You’re betting that you'll be able to handle larger payments if interest rates rise. They could also decrease, of course, but it's smart to look at the "worst-case scenario" when you’re deciding if you can handle an ARM.

Use this calculator to help you decide if a fixed-rate mortgage or ARM would be better for you.

The Loan Application Process

The best approach to applying for a mortgage is summed up by the scout motto: Be prepared.

You will be asked to fill out an application form, either before or at the loan interview. The lender will also need documentation to support the information you fill in on the application form. Use the checklist below to gather the necessary documents. Bring everything with you to the interview. Being prepared will make the process both easier and faster.

Loan Interview Checklist

• The complete signed purchase contract including all exhibits/amendments and/or counter-offers
• A receipt for your deposit with the seller or escrow company
• Proof of income - Bring stubs from last month's paychecks and W-2 forms for the last two years. If you're a two-income household, bring documents for both of you.
• If you’re self-employed, bring copies of at least the last two years’ tax returns and a year-to-date profit/loss statement.
• Statements for all checking, savings, and deposit accounts
• Stock/bond statements, if applicable
• Award letters (Social Security, disability, retirement), if applicable
• If you're divorced, a copy of the divorce decree and proof of receipt of payment for alimony and/or child support
• Your checkbook. You’ll have to pay the following fees:

Appraisal fee. The lender hires an appraiser to determine if the market value of the house is sufficient to cover the mortgage amount. This usually costs between $150 and $300.

Loan application fee. The lender may charge a nonrefundable fee to cover the costs of processing your loan.