How To Get A Mortgage: A Step-By-Step Guide
Getting a mortgage may seem complicated, but it doesn’t have to be. Whether you’re buying your first home or upgrading to your dream house, understanding the process can make everything smoother and a lot less stressful.
From getting pre-approved to closing the deal, each step brings you closer to homeownership. And with Rate’s Same Day Mortgage application, you’ll have the tools and support to simplify the journey.*
Follow these steps so you can focus on what matters most: finding the perfect place to call home.
How to get a mortgage: step by step
Getting a mortgage is all about breaking the process into manageable steps. Here’s what you need to know:
1. Apply for mortgage preapproval
Mortgage preapproval is the first step toward getting a mortgage and sets the foundation for your homebuying journey.
This process allows a lender to review your financial information, such as your credit history, income and debts, to determine how much you could qualify to borrow. A preapproval doesn’t just give you clarity on your budget; it also shows sellers you’re a serious buyer.
Prequalification vs. preapproval
Although often used interchangeably, prequalification and preapproval are not the same.
Prequalification is a quick estimate based on the basic financial details you provide.
Preapproval, however, involves a detailed overview of your financial standing, such as your credit history and available assets, making it much more a reliable gauge to determine your creditworthiness.
2. Get a mortgage preapproval letter
If you've been preapproved, your lender will issue a mortgage preapproval letter, which outlines the loan amount you qualify for and serves as proof of your financial readiness.
Sellers often consider offers more seriously when buyers have a preapproval letter, making it a crucial part of the process. To get a favorable rate, ensure your financial information is up to date.
3. Find a property & negotiate an offer
With your budget in hand, it’s time to search for the perfect home. Work with a real estate agent who understands your priorities.
When you find the right property, your agent will help you negotiate an offer that works for both you and the seller. Market conditions, an agreed-upon mortgage interest rate and other terms may all play a role during this stage.
4. Start the underwriting process
The underwriting process ensures everything about your application and the property checks out. Your lender will verify the details you provided, such as income and assets, and arrange for an appraisal to confirm the home’s value.
The mortgage broker or service provider may also review additional documentation during this phase. Responding quickly to requests for additional information can speed things along and demonstrate your commitment to completing the process.
5. Close on the home
Closing day is when it all comes together. You’ll sign the necessary documents, pay any remaining fees and officially take ownership of the home. Be prepared to cover expenses such as attorneys fees or property taxes, depending on your location.
This step marks the end of the mortgage process and the beginning of homeownership. Celebrate this milestone; you’ve just achieved one of life’s major financial goals!
What are mortgage lenders interested in?
When you apply for a mortgage, lenders evaluate your financial profile to make sure you’re financially reliable. They focus on several major factors such as your credit history, income and debt-to-income ratio to determine your eligibility. Here’s what they look for:
Credit score
Your credit score is one of the first things lenders check – and for good reason. It serves as a snapshot of how well you manage debt.
A strong credit score typically often leads to better mortgage terms, such as lower interest rates and reduced fees. Even a small difference in your score could save you thousands of dollars over the life of the loan.**
How high of a credit score do you need to qualify for a home loan?
Most conventional loans require a minimum credit score of 620. Some government-backed loans, like FHA loans, accept scores as low as 580, and in certain cases, even 500 with a larger down payment.
To qualify for an FHA loan with Rate, borrowers need a minimum credit score of 500. For the 3.5% down payment option, a credit score of at least 580 is required.
If you’re looking for a VA loan, the Department of Veterans Affairs doesn't set a minimum credit score, but Rate typically requires a minimum score of 640.
If you have a strong credit score, 700 or higher, you’ll have access to more loan options with better terms, including favorable rates and reduced private mortgage insurance (PMI) requirements.***
Income and employment history
Lenders prefer borrowers with stable incomes and consistent employment histories, as these indicate the ability to make timely payments.
Typically, they like to see at least two years of steady work in the same field. Gaps in employment might raise concerns unless you can explain the circumstances.
How high a salary do I need to afford a mortgage?
The salary needed depends on the home price, interest rates, and other monthly financial obligations. For example, a $300,000 home with a 6% interest rate might require an annual income of around $80,000, assuming you have minimal debt.****
Using Rate’s mortgage calculator can provide better insights into how much money you’ll need based on your financial situation.
Debt-to-income Ratio (DTI)
Your DTI ratio is a crucial part of the mortgage process. It measures the percentage of your monthly income spent on debt payments, including your mortgage, credit cards, and car loans.
Most lenders prefer a DTI below 43%, but some may allow up to 50% for strong applicants. Keeping your DTI low can lead to better mortgage terms and higher borrowing power.
Property Type
Lenders assess the type of property you’re buying because it impacts the loan’s risk. Primary residences are considered the safest investments for lenders, so they typically come with the best terms.
Vacation homes or investment properties carry higher risks and may require larger down payments and higher credit scores. Make sure to consider these conditions before finalizing your home purchase.
Assets
Lenders also review your assets, such as savings, investments, or retirement accounts, to ensure you have the financial reserves to cover unexpected expenses.
Having assets shows that you’re prepared to handle costs like a down payment, monthly principal, or closing fees. The bigger your financial cushion, the stronger your application will appear.
Which Documents Do You Need for a Mortgage?
When you’re applying for a mortgage, having the right paperwork in order can make a world of difference. It keeps the process moving and shows lenders that you’re ready to take the next step toward homeownership. Here’s what you’ll need to prepare:
Proof of Income
Income documentation proves to lenders that you have a reliable way to make monthly mortgage payments. Pay stubs from the last two months, W-2 forms, and recent tax returns are standard requirements.
If you’re self-employed or have non-traditional income, lenders may ask for additional proof, like 1099 forms or year-to-date profit and loss statements. Showing steady income reassures lenders of your financial stability.
Asset and Liability Documentation
Lenders need a clear view of your financial standing. This includes bank account statements, retirement fund balances, and investment account summaries. These assets demonstrate your ability to pay for your down payment, closing costs, or other expenses.
Additionally, you’ll need to show your liabilities, like car loans, student loans, or credit card debt, so lenders can assess your overall financial picture.
Credit Score
Your credit report and score is one of the first things lenders review. It gives a snapshot of your financial behavior, including your payment history and any overdue debts.
Double-check your report for errors before submitting your application, any inaccuracies could impact your approval odds or interest rate. If you see an issue, resolve it quickly to avoid unnecessary delays.
Which Loan Is Best for First-Time Home Buyers?
Navigating the sea of loan options can be overwhelming, especially for first-time buyers, but understanding your choices makes it easier to find a loan tailored to your needs. Different types of mortgages are designed to fit various first-time home buyers' financial situations and goals.
Conventional Loans
These loans are popular among buyers with strong credit and steady income. While they require a higher credit score (typically 620 or more) and a larger down payment than government-backed loans, they often come with competitive interest rates.
If you can put down at least 20%, you’ll also avoid PMI, which can save you hundreds each month.
FHA Loans
Backed by the Federal Housing Administration, FHA loans are great for buyers with limited savings or lower credit scores. They require as little as a 3.5% down payment option for borrowers with a credit score of 580 or higher.
However, FHA loans include mandatory mortgage insurance premiums (MIP), payable monthly, which add to your overall costs.
USDA Loans
If you’re considering a home purchase in a rural area, USDA loans might be your best bet. These loans, given by the federal government, offer no down payment and competitive interest rates, but they’re only available for properties in eligible areas. You’ll also need to meet income limits, which vary by location.
VA Loans
VA loans are a fantastic option for eligible veterans, active-duty military, and their families. Backed by the U.S. Department of Veterans Affairs, VA loans require no down payment, no PMI, and often come with better mortgage terms than conventional loans.
These loans are one of the most affordable ways to achieve homeownership for those who qualify.
Jumbo Loans
If you’re purchasing a high-value home that exceeds conventional loan limits, currently $806,500 in most areas, you’ll need a jumbo loan. These loans require higher credit scores and larger down payments but are essential for financing luxury properties.
How Can I Increase My Chances of Getting a Mortgage?
Getting a mortgage approval is about more than meeting basic qualifications. It’s about presenting yourself as a financially responsible and a low-risk borrower. Here’s how you can improve your chances:
Raise Your Credit Score
Lenders view a strong credit score as a sign of financial health. Do your best to pay your bills on time, lower your outstanding debt, and avoid opening new credit accounts before applying.
Even a small credit score increase can lead to better terms.
Save for a Larger Down Payment
A bigger down payment lowers the amount you need to borrow, potentially lowering your monthly payments and eliminating the need for private mortgage insurance (PMI).
It’s a win-win for you and your lender.
Maintain Financial Stability
Lenders look for consistency and even small changes can raise questions.
Avoid switching jobs, making large purchases, or taking on new debt while your application is under review.
Pay Down High-Interest Debt
Reducing your debt-to-income (DTI) ratio can make your application more appealing. Focus on paying off credit cards and other high-interest obligations to strengthen your financial profile.
The key is preparation. By organizing your finances and being proactive, you’ll position yourself as a trustworthy borrower and make the process much smoother.
How Can I Apply for a Mortgage Today?
Applying for a mortgage is easier than ever, especially when you have the right support. Start by connecting with a trusted lender like Rate to guide you every step of the way.
Take your time to gather the necessary documents, review your finances, and ask questions, no matter how small they may seem.
With Rate's Same Day Mortgage, you can begin your journey to homeownership with confidence and clarity. Your dream home is within reach, and with the right tools and guidance, you’ll get there sooner than you think.
Rate, Inc. is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the Nevada Department of Veterans Services, the US Department of Agriculture, or any other government agency. No compensation can be received for advising or assisting another person with a matter relating to veterans’ benefits except as authorized under Title 38 of the United States Code.
*Rate, Inc.’s Same Day Mortgage promotion offers qualified customers who provide certain required financial information/documentation within 24 hours of locking a rate on a mortgage loan the opportunity to receive a loan approval within 1 business day of timely submission of documentation and does not suggest that the borrower will receive funding on the same day as their application submission. For purposes of this offer, documents provided after 1 pm local time or on a weekend or company holiday will be deemed submitted the next business day. Rate, Inc cannot guarantee that a loan will be approved or that a closing will occur within a specific timeframe. Not eligible for all loan types or residence types. Self-employed borrowers are not eligible. Borrower's interest rate will depend upon the specific characteristics of borrower's loan transaction, credit profile and other criteria. Not available in all states. Restrictions apply. Visit rate.com/same-day-mortgage for terms and conditions.
**Savings, if any, vary based on consumer’s credit profile, interest rate availability, and other factors. Restrictions apply.
***Rate, Inc. does not provide credit counseling or credit repair services.
****Sample rate provided for illustration purposes only and is not intended to provide mortgage or other financial advice specific to the circumstances of any individual and should not be relied upon in that regard. Rate, Inc. cannot predict where rates will be in the future