Avoid Common Mistakes
When Looking for a Loan

Question: I'm going to purchase my first home this year and want to shop around for the best mortgage. When I inquired at one lender for the purpose of pre-qualification, I was told that I needed to complete a loan application. The mortgage company requested and I submitted copies of pay stubs, bank statements, income-tax filings and W-2s They also pulled a copy of my credit report. Is this too much information to provide for a pre-qualification? It felt as if I was being pushed toward pre-approval. At what point would I be obligated to use a particular lender after submitting so much information and completing a loan application? I don't want to commit to a lender until I have at least three offers to compare. How much information am I required to provide? Will each company pull my credit report?

Linda: You touch on three problems that many consumers encounter when attempting to secure the best mortgage. The first is pre-approval. Lenders want you to obtain pre-approval in the hope that you'll eventually get your mortgage from them. Unfortunately, to do this they need to pull a credit report. If you go to several lenders and have several reports pulled, it actually could adversely affect your credit rating. Multiple credit-report requests suggest to lenders that you're out shopping for credit. This worries them about your intentions.

The second issue you raise is shopping around for the best terms. There's nothing with wrong with doing this. In fact, it's definitely a good idea. My only suggestion is that you do this before you settle on a particular lender. If you try to complete a significant portion of the process with multiple lenders, and wait until just before you're ready to close to decide on one, you may end up with worse terms than if you had picked one early on.

Finally, it's important to remember that you need to shop for more than just interest rates. Make sure that the other terms of the loan are right for you. Ask yourself the following questions when comparing mortgages:

• Is there a prepayment penalty?
• Are there onerous fees?
• Is the length of the loan -- 15 or 30 years -- right for me?
• Is the interest rate adjustable or fixed?
• Is the loan fully amortized, or does it include a balloon payment?

Pick a reputable lender who offers the best interest rate and terms, and gain pre-approval. You can then use the pre-approval letter to help you negotiate better terms with sellers.

For more advice, check out my book, "Tips and Traps When Mortgage Hunting" (McGraw-Hill, 1998).

Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Tips and Traps When Building Your Own Home," (McGraw-Hill, 2000).

Submit your question about residential real-estate and home-improvement issues to homes.wsj.com. Please include your first name, city and state.

Linda, Washington, D.C.

Email your comments to rjeditor@dowjones.com.