How To Get A Mortgage: A Step-By-Step Guide

You probably already know that a mortgage is a type of loan that you use to buy a home. It’s a good idea to learn as much as you can about getting a mortgage before you start shopping for a home.

We’ll get you ready to go mortgage shopping by going over the five steps it takes to complete the mortgage process, what lenders look for during the application process and the paperwork required.

How To Get A Mortgage From Start To Finish

There are five main steps to be aware of when trying to get a mortgage loan to purchase a home.

Step 1: Apply For Mortgage Preapproval

Preapproval is the process of learning how much a lender is willing to lend to you. When you apply for a preapproval, lenders take a look at your income, assets and credit. Then they will tell you how much they can lend to you. They’ll also determine your interest rate.

Preapproval Vs. Prequalification

Although similar in name, a preapproval shouldn’t be confused with a prequalification. Prequalifications are less accurate than preapprovals because they don’t require asset verification.

While a prequalification can be helpful, it won’t give you the most concrete idea of how much money you’ll be lent, whereas a preapproval can. That’s because lenders require you to provide documents for the preapproval that help prove your income and debt obligations to ensure you’re eligible for the mortgage.

Getting preapproved for a loan and knowing the amount of money you will receive will help you narrow your property search and make you more appealing to both sellers and real estate agents.

Check Your Credit Score

The first thing you’ll do when you apply for preapproval is answer a series of questions about yourself, your income, your assets and the home you want to buy. You'll then give your lender permission to look at your credit report.

Your credit report is a record of your borrowing history from any lenders and creditors you’ve worked with in the past, including credit card companies, banks, credit unions and other financial institutions.

Customize Your Personal Mortgage Solutions

After your lender verifies your credit, they'll provide you with a few mortgage options that you can customize to fit your needs. You’ll be shown a few different mortgage solutions and how much you can qualify for.

You can also learn more about your individual interest rates, loan types you may be eligible for, monthly payments and down payment requirements.

Step 2: Get Your Approval Letter

Once you find the best mortgage solution for your needs, you can see if you’re approved online. If you are, you’ll typically get a letter stating that you got your initial mortgage approval and the amount you qualify for. You’ll be able to use this letter when making an offer on a house to show the seller that you’re serious about making the purchase and that you will have the funds to do so.

Step 3: Find A Property And Make An Offer

Now comes the best part – finding the home that’s right for you. To help you with your search, try connecting with a real estate agent in your area when you start viewing properties, especially if you’re buying your first home.

A real estate agent can help you narrow your search and show you properties that fit both your budget and needs. Once you find the right home, they’ll also help you submit an offer and potentially begin negotiating with the seller. Once the seller accepts your offer, it’s time to move to the final stages of the home buying process.

Step 4: Verify The Details

During the verification process, an underwriter takes a closer look at your assets and finances. You’ll provide documentation and paperwork that backs up the information you submitted when you applied.

Your lender will also need to verify your property details. This usually involves ordering an appraisal, verifying the home’s title and scheduling any other state-required inspections.

The time it takes to close on a house can range anywhere from a few days to a few weeks from start to finish. As soon as underwriting finishes, you’ll receive a document called a Closing Disclosure.

Closing Disclosure

Your Closing Disclosure tells you everything you need to know about your loan, including your monthly mortgage payment, down payment, interest rate and closing costs. Make sure your Closing Disclosure is similar to your Loan Estimate, which you should have received from your lender 3 business days after you applied for your loan.

Step 5: Attend Your Closing

Once you get your loan approved, it’s time to attend a closing meeting. At closing, you’ll have a chance to ask any last minute questions you may have about your loan. Remember to bring your Closing Disclosure, a valid photo ID, your down payment and a check for your closing costs. Once you sign on your loan, you’re officially a homeowner.

What Are Mortgage Lenders Looking For?

When you go to complete the first step of the mortgage process – applying for preapproval – it’ll likely be helpful to know what exactly your prospective lender is going to look for. Lenders look at a few different factors when you apply for a mortgage with the goal of assessing your ability to pay back the loan.

The key areas taken into consideration are your income and job history, credit score, debt-to-income ratio (DTI), assets and the type of property you’re looking to purchase.

Income And Job History

One of the first things that mortgage lenders consider when you apply for a loan is your income. There is no set income amount that you need to earn each year to be able to buy a home. However, your mortgage lender does need to know that you have a steady cash flow to pay back your loan.

To verify your income, your lender will want to look at the following:

• Your employment history
• Your monthly household income
• Any other forms of money you have coming in (child support, alimony payments, etc.)

Credit Score

Your credit score plays a major role in your ability to get a mortgage. A high credit score tells lenders that you make your payments on time and that you don’t have a history of borrowing too much money. A low credit score makes you a riskier borrower because it tells lenders you may have a history of mismanaging your money.

The minimum credit score for a conventional loan is usually 620. For a government-backed loan, you’ll need a credit score of at least 580, but that can vary depending on which loan you choose.

A higher credit score can give you access to more lender options and lower interest rates. If you have a lower score, it’s a good idea to try to boost your credit score for a few months before you apply for a loan.

Debt-To-Income Ratio (DTI)

Similar to income and credit score, your debt-to-income ratio is a strong indicator used by lenders to determine if you have the requisite cash flow to qualify for a mortgage.

Your DTI is calculated by taking the total of all your minimum monthly debt payments and dividing it by your gross monthly income. The types of debts that you’ll need to factor into your DTI will be recurring, such as credit card payments, student loans and auto loans. Expenses like groceries or a streaming subscription can be left off when calculating DTI.

Depending on the mortgage type you’re applying for, the DTI a lender is looking for will vary. Typically, for a conventional mortgage, a DTI of 50% or less is the benchmark – but many government-backed loans will have higher thresholds.

Assets

When buying a home, lenders want to know that you have some extra money in the bank in