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How To Get A Mortgage: The Home Loan Approval Process In 9 Steps

Mary Grace Schmid11-Minute Read
July 27, 2022

To own a home is a major step in anyone’s life. But it’s not always an easy journey to home ownership, as it’s a unique experience for everyone. While it's possible to pay for a house completely in cash, most people will need a mortgage to become a home owner.

The mortgage process can seem daunting, but it’s something that hundreds of people go through every single day. According to data collected under the Home Mortgage Disclosure Act (HMDA), the total amount of closed-end mortgage originations in 2020 was 13.6 million. While every single one of those cases were different, they generally all went through the same steps. Learning about mortgages and the steps to getting your own can give you confidence throughout the home buying process.

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What Is A Mortgage Loan?

A mortgage loan is used to buy real estate. When someone takes out a mortgage, they transfer the security interest in the home to the lender funding the loan. Lenders use that leverage as collateral to cut the risk of lending you such a large amount of money. This means that if you are unable to repay the loan, the house can go into foreclosure by the lender. This qualifies a mortgage as a “secured loan,” as the house itself is collateral.

What Are Mortgage Lenders Looking For In A Home Loan Borrower?

When someone applies for a mortgage loan, the lender will look at their application to determine how risky it is to lend money to them. They consider different factors to determine what loans the applicant qualifies for. Knowing what lenders are trying to assess can help prepare you for your own approval process.

Credit Score 

A credit score is a major factor in the mortgage loan process. Introduced in 1989, the current system offers lenders a simple way to determine someone’s creditworthiness. It bases itself on your credit report, which is a record of transactions related to your credit history.

There are two different credit scoring systems, FICO® and VantageScore®. The major mortgage lenders consider your FICO® Score. While mortgage lenders and investors have different requirements, the minimum credit score to buy a house with a conventional loan is 620. But, if you are seeking a loan insured by the Federal Housing Administration (FHA), the minimum is 580. For the best interest rates on a mortgage, the ideal credit score needed to buy a house is 760 or above.

The 28/36 Rule

Your debt-to-income ratio, or DTI, is a percentage of how much money you spend on paying off debts versus how much money is coming in. It’s simple to calculate – just add up your monthly minimum debt payments and divide it by your monthly pre-tax income. In most cases, you’ll need a DTI of 50% or less.

Lenders prefer a lower DTI and applicants who fall under the 28/36 rule. This rule means that your mortgage payment wouldn’t cost more than 28% of your monthly pretax income. Under this rule, in total, you only spend 36% of your monthly income on all your debts.

Down Payment

A potential buyer needs a down payment to finalize a home purchase, as it’s a certain amount of money you pay upfront when the home’s sale is being processed. The exact amount of the down payment is a certain percentage of the home’s sale price. As an incentive for first-time home buyers, you may be able to put less down. You can be classified as a first-time home buyer if you have not been on the title of a property for 3 years.

Remember, a 20% down payment is not necessary for most lenders. But if a mortgage applicant has a low credit score, having a larger down payment can allow for a lower interest rate. It can also reduce the amount you’ll need to borrow from your mortgage lender.

What Should I Do To Get Ready To Apply For A Home Loan?

Like any major financial commitment, the mortgage application process and buying a home requires strategic preparation that may require some extra time, so the best time to start preparing for a mortgage application is now.

Collect Your Documentation

When you apply for a mortgage loan, you’ll need to provide certain documents to the potential lender. The mortgage preapproval documents that you’ll need depends on what type of loan you’re applying for. A general list of documents you can prepare, includes:

  • Personal identification (driver’s license, Social Security card and passport)
  • Proof of income and employment (W-2 forms, and pay stubs)
  • Credit verification (credit report)
  • Assets and debts (loan payments, proof of payment toward debts, bank statements and other investment statements)
  • Rental history (former addresses and verification of rent)

Build And Polish Your Credit Score

Your credit score determines if you’re eligible for a mortgage and what type of loan you may qualify for. While some people may have credit already, younger people interested in buying a house may need to work on establishing credit. Building excellent credit from the beginning puts any hopeful home buyer on a clear path to owning a home. Many lenders even offer programs to help improve a credit score.

Review Your Credit Report

Everyone can access a free credit report once a year from each of the three major credit bureaus – Equifax®, Experian® and TransUnion®. Be sure to review the report to remove any errors.

You can also check your credit and learn what is impacting your score on the Rocket HomesSM credit score check page.

Improve Your Credit Score

To improve your credit score, reduce the debt on your credit cards and make sure that there are no late payments.

Another way to ensure that your credit remains in check is maintaining a good credit utilization ratio. Your credit utilization ratio is dependent on how much you owe back on your card. Using 30% or less of your available credit limit will help keep your credit report in check.

Don’t Cancel Or Apply For New Credit

When applying for a mortgage, the mortgage lender will “pull” your credit to review your current credit situation. This is a hard credit inquiry and can affect your credit report. If you obtain too many hard credit pulls in a short period of time, mortgage lenders may deem you as a riskier lender. When you are in the mortgage loan process, it’s essential to not apply for new credit cards, cancel any cards or make any other hard credit pulls.

Lower Your Debt

A high DTI is a red flag for mortgage lenders and may lead to higher interest rates for those applying. If you have a high DTI, it can be beneficial to pay off and lower your debts before applying for mortgage. Paying off your debts can lead to higher credit scores and lower DTI and the loan will cost less money with a lower interest rate. If you have revolving credit debt, be sure to tackle that debt first as revolving lines of credit have added fees.

Save Every Dollar

When calculating how much money you need to buy a house, be sure to set some aside for house hunting, your down payment, closing costs, moving and furnishing your new home. These steps in the home buying process are not cheap and should be included in your budget. The total amount that you need to save up for will depend on your unique situation.

Plan For Homeownership Success

It’s no secret that buying a home is expensive, so creating a post-ownership budget as part of your mortgage planning is an important, yet often overlooked, step. Make sure that the budget realistically takes into account the costs of homeownership, particularly home maintenance costs.

Of course, you’ll also want to include your mortgage payment in your new budget. Want to get an estimate of what you can afford? Try the Rocket Homes Home Affordability calculator so you can budget for the future.

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How To Get A Home Loan: 9 Steps From Preapproval To Closing

The home buying process is different for everyone, but the basic steps are the same. These are the nine steps that will walk you through getting a mortgage. If you have questions regarding your specific situation, your real estate agent can answer any questions.

1. Apply For Approval

To get started, you’ll need to get preapproved for your mortgage to ensure you’ll get financing for the home you want. Home sellers are more likely to choose a buyer who’s already been preapproved for a mortgage, as there’s less chance of the deal falling through. You’ll want to get a preapproval letter to make a stronger offer on a home, so do this prior to shopping for houses. Once you have been preapproved for a home loan, you can evaluate your budget and begin working with a real estate agent.

Note that prequalification and preapproval are not the same thing. Prequalification provides an estimate of what you might qualify for based on the financial information you provide. A preapproval is more accurate, as it requires a credit check and documentation of your income.

A verified approval includes verification of a borrower’s income, assets and credit score, which gives a more accurate estimate on how much you can afford to sellers.

Remember, the preapproval amount is the upper limit of the loan and may be higher than what you budgeted for. That doesn’t mean you should go above your budgeted amount or what you can realistically afford.

2. Shop Around For The Best Mortgage Loan

Mortgage lenders will have different interest rates you’re eligible for and fees you pay. Finding a lender can be overwhelming, considering how many there are to choose from. From traditional banks and credit unions to mortgage brokers and online lenders, there’s no one right type of lender for everyone, so you’ll have to decide what’s best for your situation. Take your time to find the best mortgage lender for you and get a few mortgage loan quotes without worrying about damaging your credit score. In fact, Freddie Mac estimates that borrowers could save around $1,500 by getting two quotes and $3,000 by getting several. To help find the best offer for you, consider lender reviews and ratings, too.

3. Choose A Type Of Mortgage Loan

To accommodate people and their financial situations, there are different types of mortgages available. The most common options include:

Conventional Conforming Loans

A conventional loan is a home loan that isn’t a part of a government program. These loans come with terms of 15 – 30 years at either fixed or adjustable rates, with the 30-year fixed-rate conventional mortgage being the most popular. Conventional loans offer low down payment options and affordable financing for those with established, good credit.

Government-Insured Loans

Government-insured loans are granted through the Federal Housing Administration (FHA). the Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA). An FHA loan is originated by a private lender and backed by the FHA. These loans allow borrowers to buy a home with a credit score that’s lower than what’s allowed for a conventional loan.

A VA loan originates with a private lender and backed by the VA. These loans are available to current and former military members and eligible spouses and have flexible and attractive loan terms, including no down payment requirement.

A USDA-eligible loan helps lower to moderate income families buy a home in eligible rural areas. The USDA backs these loans, which allows lenders to offer lower rates with no down payment required.

Jumbo Mortgages

A jumbo mortgage is a type of conventional loan, but it exceeds the loan limits for those backed by Fannie Mae and Freddie Mac. Because the lender takes on more risk, jumbo loans generally have stricter requirements. These are the most common type of conventional nonconforming home loan.

Jumbo mortgages are the only type of non-conforming loan that Rocket Mortgage® offers with our Jumbo Smart loan product. To meet Jumbo Smart loan requirements, you’ll need a minimum credit score of 680, a DTI of 45% or lower and a loan to value ratio of less than 89.99%.

4. Make An Offer On A House

When you and your real estate agent find a home that fits your needs, you can finally make an offer. You’ll need to decide how much you want to offer, if you’re going to ask for any contingencies and then present a real estate purchase agreement. The purchase agreement is a legally binding document between the buyer and the seller that lists the details of the purchase and sale of the property.

5. Complete A Formal Mortgage Application

Once the seller accepts your offer on the home, you’ll need to officially apply for the mortgage loan. The purchase agreement will come in handy at this point, as the mortgage lender must assess the value of the house while monitoring your financial status. As part of the application, you’ll have to provide the following:

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

6. Proceed To Underwriting

During the underwriting process, your lender will forward your completed file to their underwriting department. During this process, they’ll review your mortgage application, the details about your credit report, income and assets, the purchase agreement, title search and then they will make their decision. The loan is either approved, denied or suspended. Once you have an approved loan, you’ll receive a mortgage commitment letter that includes the approved loan amount, the interest rate and the acknowledgement that you’ve been officially approved for the loan.

7. Get An Appraisal Inspection

The underwriting process also includes the beginning of the home appraisal. This process determines the value of the home and lets the lender know they aren’t lending more than the home is worth when compared to the agreed upon sale price. Note that appraisals can be a bit more stringent for FHA, VA and USDA loans, which might make them less attractive to home sellers.

8. Order A Home Inspection

A home inspection involves a professional inspector who determines if any undisclosed defects are present in the home. Home inspections are very important for homebuyers. If there are any major issues found in the home, you can ask the seller to pay to have them fixed or you can walk away from the deal. However, if you don’t include an inspection as a contingency in the offer you may lose your earnest money that you submitted to the seller.

9. Get Cleared To Close And Schedule Your Closing

You’ve made it to closing! You can officially take ownership of your new home after you sign your loan documents and your lender disburses the funds. At your closing, you’ll pay your closing costs and receive your closing documents. In some places, the closing process is completed in person with an attorney, while in others, you won’t need an attorney present. You can even conduct closings online via virtual meeting platforms.

At 3 days prior to your closing date, you should receive a Closing Disclosure from your mortgage lender that includes the final statement of the loan terms, the total closing costs and your projected monthly mortgage payment. Read this carefully and make your lender aware of any issues as soon as possible.

How Long Does The Mortgage Process Take?

How long it takes to get a mortgage is dependent on different factors, including location and the underwriting process. On average, it takes 30 – 45 days from the time you apply for your mortgage to the time you close.

The Bottom Line: Your Agent And Lender Will Guide You Through The Mortgage Process

Understanding the process of how to get a mortgage and the materials you need beforehand can be a huge help to prospective homeowners. Even if you get lost throughout the journey, your lenders and real estate agents are there to help you every step of the way.

Remember that qualifying for a mortgage and having an offer accepted on a home will be far simpler with preapproval – plus it’s easy to apply! Be sure to start your application for approval once you're ready to take the next step in your home buying journey.

Take the first step toward buying a house.

Get approved to see what you qualify for.

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Mary Grace Schmid

Mary Grace Schmid is a staff writer covering homeownership, personal finance and lifestyle topics. She has a B.A. in public relations from Baylor University with a minor in political science and enjoys photography, music and reading in her free time.