Family walking into house

How To Get a Mortgage, Step by Step

Erica Gellerman5-Minute Read
January 12, 2022

When you’re trying to understand how to get a mortgage, it’s easy to feel overwhelmed. The mortgage process is both complicated and lengthy, and many first-time home buyers struggle to know where to start.

What is the first step and how do you make sure you’re finding the best mortgage options for you? In this step-by-step guide, we’ll explain the stages of the process so you can feel confident about how to get a mortgage.

1. Manage Your Credit Score

Lenders are going to look at a number of things to qualify you for a mortgage. One of the biggest considerations is whether they trust that you’ll be able to repay the loan. This is often determined by looking at your credit history, which means the first step towards getting a mortgage is to get your credit mortgage-ready.

In general, you’ll need a median FICO® Score of 620 or higher to qualify for a conventional loan. But if you qualify for an FHA loan, Rocket Mortgage® only requires a minimum credit score of 580.

If your credit score isn’t quite where it needs to be, focus on making on-time loan payments and work on paying down any existing credit card balances.

2. Prepare Your Budget

A lender will tell you how much money you qualify for, but that amount might be different from what you can comfortably afford, so it’s important to take the time to plan and prepare your budget.

Your lender will base your approval on your debt-to-income ratio (DTI), which represents how much of your monthly gross income is going to debt payments. Your DTI requirement will be specific to your personal situation and the type of mortgage you’re applying for, but most lenders consider a DTI of 43% or less to be good. If your DTI is higher than 43%, you may want to consider talking to a Home Loan Expert to discuss your options.

Once you approximate your DTI, you can prepare a budget that works for you. For example, let’s say your DTI is 43%. In this case, you want to build a budget where your monthly mortgage payment will be less than 43% of your gross monthly income.

Don’t forget to factor in the cost of private mortgage insurance (PMI), which is required by mortgage lenders when the down payment is less than 20% of the home’s purchase price.

Need a real estate agent?

Match with a local expert.

3. Find The Right Lender

It’s time to choose your lender! Be sure to check for interest rates, closing costs, the length of the loan term, any PMI requirements, and your total monthly payment, as these factors can vary significantly between lenders.

But you should also be sure to consider aspects beyond the bottom line. Buying and owning a house is a long journey, so it’s important to choose a lender you can trust that will make the process as simple as possible.

4. Get Prequalified And Preapproved For A Mortgage Loan

Now that you have an estimate of your budget, it’s time to start the mortgage prequalification and preapproval process. Sellers will be wary of choosing a buyer if they don’t know whether they qualify for financing, so with this important step, you’re not only making yourself a more appealing buyer, but you’re also getting some valuable peace of mind.

Note that while prequalification provides an estimate of your finances, a Preapproval is a more thorough process where a lender not only looks at the documents and financial information you provide, but verifies that it’s correct.  Because of this, preapproval is the best way to verify your creditworthiness before purchasing a home.

5. Choose A Loan Option

Many first-time home buyers are surprised by the number of different mortgages available. But before selecting your loan type, it’s important to understand what’s available:

  • Conventional home loans: This is the most common type of mortgage available. Requirements can be strict for your DTI and credit score to qualify, but you can get a home with as little as 3% down – though you’ll need to pay for PMI.
  • FHA loans: These loans are backed by the Federal Housing Authority. You can qualify for a loan with a lower credit score and a down payment as little as 3.5% of the purchase price. These loans may have lower borrowing limits compared to conventional loans.
  • VA loans: These loans are available to veterans, active service members and eligible spouses without requiring a down payment or PMI. While these loans are made by private lenders, a portion of the loan is guaranteed by the VA, allowing borrowers to get more favorable terms.

6. Apply For The Mortgage

Once you’ve had an offer accepted on your dream home, it’s time to apply for your mortgage. If you’ve already completed the preapproval process, your lender will likely have most of the documents they need. If not, you should be prepared with the following information:

  • W-2 forms for the last 2 years
  • Pay stubs from the last 30 days
  • Federal tax returns from the last 2 years
  • Proof of income
  • Bank statements
  • Personal ID and Social Security number
  • Explanations for fluctuations in income

7. Begin Closing

After all documents are submitted, it’s time to wait for closing to finalize your loan. The closing process is when the loan and the home sale become final. During closing, your lender disburses funds to the seller, and you get the keys to your new place.

This process can take a long time. According to Ellie Mae, a technology company supporting lenders, the average time to close in August 2021 was 46 days. Closing procedures will depend on where you live. In some places the closing process is complete in person with the assistance of an attorney, while in other places, you won’t need an attorney present.

On closing day you’ll receive your closing documents, transfer money to pay your down payment and closing costs, show proof of homeowner’s insurance, and make an initial deposit into your escrow account.

8. Start Loan Payments

Congratulations, homeowner! Once you’re officially in your home, it’s time to begin making your monthly mortgage payments.

FAQs About Getting A Mortgage

How long does it take to get a mortgage?

As previously stated, it takes about 46 days to close on a home. While your preapproval process will be much faster, actually closing the loan and purchasing the home can take a while.

That said, if you need to close faster, talk with your lender about ways you can speed up the process. They may be able to accommodate a quicker timeline if you’ve done a lot of the work upfront during preapproval.

Can I get a mortgage with bad credit?

If you don’t have stellar credit but you’d like to get a mortgage, there are still options available. If you have fair credit – a score of 580 or higher – you’re eligible to receive an FHA loan.

If you have less than a 580 credit score, you may still be eligible, but you’ll need to have stronger housing expense ratios or debt-to-income ratios to make up for it.

Can I buy a home with cash?

If you have a significant amount of money sitting in your savings account, you may consider buying a house with cash.

There are some definite upsides to purchasing a home in cash. First of all, your offer may look more attractive to a seller if you don’t need to wait to be approved for a mortgage. Plus, you can avoid paying interest and closing costs, and you won’t need to pay for an appraisal or wait the average 46 days to close on a loan.

That being said, if buying a home is going to drain your savings and leave you strapped for cash, it might not be the best idea when there are financing options available to lighten the load.

The Bottom Line

There are several steps involved in getting a mortgage and buying a home. But preparation is key, so if you’re organized with your information, spend time searching for a lender and find the right loan type for you, the mortgage process can be much easier.

Looking to begin your home search? Check out the Home Affordability Calculator to get a clear idea of what you can afford before house hunting!

Apply For A Mortgage Online

Erica Gellerman

Erica Gellerman is a CPA, MBA, personal finance writer, and founder of The Worth Project. Her work has been featured on Forbes, Money, Business Insider, The Everygirl, The Everymom and more.