How to get a mortgage

Knowing how to get a mortgage before you’re ready to buy a home will make the whole process much smoother (and save you from falling in love with a home you can’t afford). To get a mortgage, you’ll want to know your credit score, how much you need for a down payment, and how much you want to borrow. Read on to find out what documents you need, how long the process will take, and what factors will come into play.

How to get a mortgage from start to finish 

Most Americans take out a mortgage to purchase their home: a whopping 80% of buyers, to be specific. A mortgage is a loan where you put down some money toward the house (usually between 3% and 20%) and borrow the rest, paying it back over time, with interest. The house is then collateral on the loan; if you default, the lender can take your house back.

Here’s exactly how to get a mortgage, step by step:

1. Check your credit

Your credit score will significantly impact whether you’re approved for a mortgage and what your mortgage rate will be. Before you start searching for a lender, make sure your credit is in good shape. You can order a free credit report from each of the three major credit bureaus (Equifax, Experian, and Transunion) to see where you stand. Carefully check for errors that could drag your score down. If your credit could use a boost, work on paying down your debts and make sure every payment is on time.

2. Examine your finances

Next, you’ll need a clear picture of your finances. Make sure you know the following:

• How much money you bring in each month
• Your monthly expenditures, including rent, loans, and credit card payments
• Your debt-to-income ratio (DTI), which measures what you owe monthly compared to your gross monthly income. Ideally, your housing and debt payments will be 33% or less of your gross monthly income.
• How much money you can put toward a down payment (usually between 3% and 20% of the purchase price)
• How much you can put toward your closing costs (which are often about 3% to 4% of the loan amount)
• How much you can afford to pay for a mortgage each month (including principal, interest, taxes, and insurance); ideally, this will be less than 28% of your monthly take-home pay
• How much you should set aside to cover maintenance and repairs for your new home (you can budget about 1% to 3% of the home’s purchase price each year)

3. Shop for lenders 

With an idea of your credit score and monthly budget, you can look for the best mortgage lenders for your needs. You can choose from national mortgage lenders, local mortgage lenders, and online mortgage lenders. You can also use online loan comparison websites to easily find and compare loans and rates.

4. Get a mortgage pre-approval

Once you’ve found at least one or more lenders that will work for your needs, you’re ready to get pre-approved for a mortgage, which is an important part of the homebuying process.

Mortgage pre-approval is like a dress rehearsal for your home loan. The lender will collect detailed information about you and your finances and may ask for documentation such as tax returns, pay stubs, or bank statements to verify your answers. If you’re pre-approved, the lender will send you a mortgage pre-approval letter that states how much it is tentatively willing to lend you. You’ll be able to see estimates of your total loan amount, monthly payments, and fees. 

5. Shop for a home

With a mortgage pre-approval in hand, you can confidently begin shopping for homes in your price range. You can also show potential sellers your mortgage pre-approval letter, which is a strong signal that you’re a serious buyer and can get the financing needed to close the deal.

6. Apply for the mortgage

Once a seller has accepted your offer, you can apply for the mortgage. You can notify the lender that gave you a pre-approval that you intend to proceed with the loan; the process should go quickly, as you’ve already provided your financial information. But you’re not locked in to the lender that pre-approved you. You can apply for a mortgage with a different lender.

Once your application is submitted to your lender of choice, your mortgage goes through underwriting, which is when the lender verifies everything you’ve submitted (credit score information, asset details if applicable, tax returns, etc.) to evaluate its risk in lending to you. This step answers two important questions:

1. What is the likelihood that the homebuyer will repay the loan? The underwriter will review your debt-to-income ratio (DTI), payment history, savings amount, and other financials to determine how likely you are to repay the loan or default on it.

2. Does the home value match up with the loan amount? The underwriter will also examine the home’s loan-to-value ratio (LTV). The LTV describes the property’s sale price compared to the loan amount. The higher your down payment, the less you’ll need to borrow. For example, if you make a down payment of 10%, you’ll need a loan to cover the remaining 90%. In that case, your LTV would also be 90%.  

This process typically takes a few days but it can take longer if you are missing certain documents or if the lender reaches out with questions. It will evaluate your collateral (which is the home itself) and capacity to repay the loan. After underwriting, your mortgage application will be approved, rejected, or deferred until you provide more information.

7. Close on the loan

If your application is approved, the final step to getting a mortgage is called closing. This is the day you sign all the paperwork, pay the down payment and closing costs, and get the keys. Three days before, your lender will send you a closing disclosure statement that spells out every detail of your new mortgage. Review it carefully for errors before signing any documents or handing over money. When everything is squared away, it’s time to get the keys to your new home.

Find Rates Now

What documents do you need to get a loan?

Lenders will want to make sure you have the funds to make your payments, so be prepared to verify the information in your application. Some of the documents you’ll need for a mortgage include:

• ID: To prove your identity, you may need to provide a driver’s license, passport, government ID, birth certificate, or Social Security card (or a combination of these).
• Pay stubs: These show your employment and pay history. If you don’t receive paper pay stubs, you should be able to access electronic ones via your payroll administrator.
• Tax documents: Your W-2s, 1099s, and federal tax returns are used to verify your employment and income. 
• Bank statements: These document your assets and expenditures. Plan to gather monthly bank statements for your checking, savings, and investment accounts. If you don’t have paper statements, you can print electronic statements.
• Gift letter: If some of your funds to purchase the home are from a gift, you may need to provide a letter from the gifter stating you don’t need to repay the money. Your lender might also ask to see evidence of the transfer.

What factors play a role in the mortgage process?

When you apply for a mortgage, your lender will weigh many different considerations. The factors below affect not only whether you’ll be approved, but also how much you can borrow and what your interest rate will be:

• Income: A lower income can make it tougher to get approved for a mortgage. Fortunately, there are many loan programs designed to help lower-income people buy a home, such as the Fannie Mae HomeReady mortgage.
• DTI: Even with a high income, you may not be able to afford a home if your other debts are also high. Your DTI measures your monthly debt compared to your income, and if this figure is above 43%, you may not qualify for a mortgage. 
• Credit score: Lenders will check your credit score to see how well you’ve repaid past debts. Borrowers with a high credit score may qualify for the best interest rates, but even borrowers with low credit scores can be approved for certain loan programs, depending on eligibility. For instance, VA loans have no minimum credit score requirements, but you’ll need to be a veteran or service member (or the spouse of one) to be eligible.
• Down payment: Do you have enough money for a down payment? If you put down at least 20% of the loan amount, you can avoid private mortgage insurance. But, some lenders allow mortgages with down payments as low as 3%. 

• Home: The size, location, age, and condition of the home will affect the mortgage process. You may need to get an appraisal to determine whether the price matches the market value, and an inspection to uncover any problems with the home. A home that is overpriced or in poor condition can hamper your ability to get the mortgage you want because the lender wants to make sure it isn’t loaning more than the home is worth.
• Loan type: Whether you use a conventional mortgage, jumbo mortgage, or special mortgage program will affect what you need to qualify. There are programs designed for first-time homebuyers, teachers or law enforcement, veterans, rural homebuyers, and others, and they often have more lenient credit, down payment, and income requirements. 
• Interest type: Whether the mortgage has a fixed or adjustable interest rate will affect your monthly mortgage payment. Fixed-rate mortgages keep the same monthly payment for the length of the loan while payments for an adjustable-rate mortgage are subject to change according to your loan agreement.
• Loan term: The length of the loan is another factor to consider. Mortgages commonly have 30-year terms, but you can also get 15-year or 20-year terms. Mortgages with an adjustable rate will typically have a fixed rate for an introductory period (such as three or five years), and then the rate adjusts periodically after that.

How to get a mortgage FAQ

What happens if I can’t afford a 20% down payment?

You can still buy a home without putting down 20%. Depending on the loan, you may be able to put down as little as 3%. However, without a 20% down payment, you’ll have to pay mortgage insurance, which protects the lender in case you default.

What are closing costs?

Closing costs are fees for services including appraisals, inspections, attorney fees, title search, title insurance, homeowners insurance, and the lender’s fees and costs to process the loan. You’ll need to have the funds to pay for these closing costs, which are typically about 3% to 5% of the loan amount.

How can I get a mortgage if my credit score is low?

Some mortgage programs will work with borrowers without good credit, so don’t be discouraged if your credit score is low. Check out FHA loans, USDA loans, and first-time homebuyer programs. You may be eligible for a VA loan if you’re a veteran or service member (or your spouse is); VA loans have no minimum credit score requirement.

What is the easiest mortgage to get?

FHA loans have some of the most lenient requirements for a mortgage. You may be eligible for an FHA loan with just 3.5% down and a credit score as low as 580. Put down 10%, and you could get a loan with a credit score of 500. 

What can I do if my application is denied?

“If your initial mortgage application is turned down, ask your lender for an explanation,” said Dan Green, CEO of Homebuyer.com. You’re legally entitled to know the reason your application was rejected, and that allows you to work on correcting the problems and reapply.

“Sometimes, mortgage applications are declined because your particular lender imposes standards beyond the government's minimum requirements,” he said. 

Can I get pre-approval from multiple lenders?

Yes, you can get multiple pre-approvals at the same time, and there’s no restriction on how many banks you talk to. Make sure you apply for your pre-approvals fairly close to one another. A pre-approval usually requires a hard credit check, which lowers your credit score by a few points. However, if you have multiple checks within a period of typically 30 days, your score won’t drop for subsequent inquiries.