How to Get a Mortgage: 7 Simple Steps

In many ways, applying for a mortgage is like taking the “final exam” of personal finances. You’ll be “graded” on things like your credit score, how much money you have, how much money you make, your debt-to-income ratio, and much, much more. 

It’s a rigorous process that requires plenty of prep work, but it’s totally worth it in the end when you’re standing inside your new home, gazing at the blank walls and seeing endless possibilities. 

So how to get a mortgage? What exactly is your lender looking for? Do you find a house or a lender first, and overall, how can you make this process as easy and efficient as possible?  

What is a mortgage? 

A mortgage is a special type of loan used to purchase or refinance a house. The lender provides a large sum to help cover the majority of the cost of a home, and you pay them back — with interest — over the next 15 or 30 years. 

Mortgages are types of “secured” loans, which means your lender can legally repossess the “collateral” — in this case, your house — if you stop paying your monthly mortgage payment. This added form of insurance enables mortgage lenders to offer lower interest rates (~9%) than unsecured loans like credit cards (~29%). 

Just because the loan is “secured” doesn’t mean lenders will approve just anybody for a mortgage. (They were at one point, and then 2008 happened.)

Lenders will scrutinize the details of your personal finances to ensure you can actually afford the payments towards the mortgage. So what exactly are they poring over? 

Related: What is escrow on a mortgage?

What is a mortgage lender looking for? 

In a broad sense, your mortgage lender is looking for compelling evidence that you’ll be able to make consistent monthly mortgage payments for up to 30 years. That’s why they look at things like your: 

• Credit score, specifically your FICO score
• Credit report, which you can check for free
• Debt-to-income ratio, aka your gross monthly income divided by your minimum monthly debt payments
• Current job, as well as your employment history
• Income, including structure (W-2 vs. 1099) and consistency
• Assets, like your car, that you could sell in a pinch to pay your mortgage
• Savings and investments, which you could pull from to pay your mortgage
• A criminal background check, though having a record isn’t automatically grounds for denial for many lenders

Thankfully, the Equal Credit Opportunity Act bans lenders from discriminating based on: 

• Race
• Color
• Religion
• National origin (including birthplace, ancestry, culture or language)
• Sex and gender
• Marital status
• Age
• Reception of public assistance
• Assertion of rights granted by consumer protection laws

Putting all of this together, most lenders’ “ideal borrower” would have a high-paying full-time job, gapless employment history, Excellent credit score, and plenty of places to pull from (e.g. savings) if things went south. 

But 99.9% of borrowers have something “imperfect” in their application, like sub-excellent credit or only enough savings for a 10% down payment. Heck, maybe you’re self-employed, like me or Erika, and most lenders automatically view 1099 income as less consistent than W-2 income. 

However you look on paper, you can maximize your chances from here by following all the right steps in order. 

How to get a mortgage in 7 steps

Getting a mortgage loan in 2023 isn’t a short process, but it can be a relatively straightforward one if you follow the right steps in the right order. 

1. Review your credit and establish a budget

Perform a self-audit of your finances to make sure you’re ready to buy a house. Play around with some online mortgage calculators to get an idea of a safe budget and see how a different down payment can impact the overall cost. Be sure to analyze your credit report to see if there are any errors or erroneous accounts you can address for a quick and easy boost. 

The same also goes for your cosigner. Keep in mind that most lenders look at the lower credit score of the two applicants when making a loan decision, so if you haven’t opened a healthy discussion with your partner about personal finances, now would be a good time to start. 

As for what credit scores you need to apply for a mortgage, 620 is generally considered the minimum credit score to apply for a mortgage (580 for a government-backed mortgage), but if you want a better interest rate, you’ll want to have a higher credit score, somewhere in the 700+ range.

2. Gather all of your paperwork

After setting a budget and maximizing your credit score, proceed to collect all necessary paperwork for your mortgage application.

Rocket Mortgage has a handy list of everything you may need. Here’s a quick summary: 

• Government-issued ID
• Social Security card 
• Pay stubs to verify work and income
• Bank statements for current checking and savings
• Tax documents including tax returns and 1099s/W-2s from the past two years
• Investment account statements
• List of monthly debts, including your current rent, car loans, student loans, credit cards, medical bills, and more
• Rental information and landlord references
• A “gift letter” if you received a large sum of money from a relative to buy a house, proving that you don’t need to pay the money back
• Profit and Loss statement for self-employed folks

You won’t need to supply your credit score or credit report simply because the lender will pull it directly from the credit bureaus with your consent. 

3. Browse mortgage lenders

At this point, you might be wondering: when are we going to start looking for a house?

That’s coming, but the reason we do all of this legwork first is so you’re ready to move quickly when you find a house that you love. 

Now it’s time to start browsing potential lenders. While many folks default to using their existing bank, large national banks are often too slow to respond in a fast-paced home buying market. Your lending agent may only be available between 9 a.m. and 5 p.m. and take a full week to respond to emails and calls, which can easily cost you a sale. Plus, they may not be able to close quickly, which will turn off most sellers. 

That’s why it’s best to consider local credit unions, independent local lenders and online-only options like Rocket Mortgage. Overall, the key is to find a lender that

1. Responds quickly
2. Offers a low-interest rate
3. Understands your needs and can suggest alternative mortgage types

You can start by asking for referrals from people who have bought a home in the past few years. Googling around doesn’t hurt, either. You can also use a mortgage broker, although they may charge extra fees at closing. 

Build trust by selecting three or more lenders who respond and close quickly. Now, proceed to obtain pre-approval.

4. Get preapproved

For starters, preapproval and prequalification are very different things. Prequalification is when you give a lender some high-level info about your credit and finances and they give you an estimate of how much they may lend you.

Preapproval, on the other hand, is the process of completing a full mortgage application with a lender so they can provide you with an actual loan decision (yes or no), an upper limit for how much they’re willing to loan you (e.g. $500,000) and an interest rate (e.g. 8.5%). 

Consider obtaining preapproval from at least three lenders to compare interest rates. On a $400,000 loan, going with a lender offering an 8.25% interest rate versus a lender offering an 8.5% interest rate would save you $71 on your monthly mortgage payment. 

The lender will provide you with a preapproval letter, and a signed document indicating they have reviewed your information and will lend you money, subject to specific conditions such as maintaining a steady credit score and avoiding a $100,000 appraisal shortfall.

You’ll need at least one preapproval letter to make offers on houses since the seller and their realtor won’t take anyone seriously unless they have the cash or a lender’s blessing. But once you have that letter, it’s time for the fun part.  

5. Make an offer and choose a lender

We could write a whole 2,000-word feature on this step alone, covering how to find the right realtor, the right property, and which home-buying reality shows to watch for maximum stress relief. But within the context of applying for a mortgage, here’s what you need to know about the home search. 

Lenders typically limit the validity of preapproval letters to 60 to 90 days, forcing you to find a home within this timeframe or go through the pre-approval process again, potentially causing a slight drop in your credit score

Lenders are highly likely to preapprove you for an amount significantly exceeding your initial budget, such as $550,000 versus $400,000. That’s absolutely not an endorsement by your lender to spend more, but rather, just an extreme upper limit of what they’re willing to lend you. 

Once you’ve had an offer accepted on a property, it’s time to pick which lender you want to complete the sale with based on who’s the most agile, flexible, and offered the lowest interest rate. 

6. Finalize your loan paperwork and closing documents

Once your offer has been accepted, you’ll enter a period called “closing” which typically lasts around 30 days (often less in hot markets). 

During closing your lender will order an appraisal of the home to make sure the home’s market value lines up with its sale price (because it’s being used as collateral on the loan). They’ll also help you finalize your mortgage application and make sure they have absolutely everything they need to approve your loan. 

It’s your job to stay in touch with your lender during the mortgage approval process and get them anything they need promptly. They may ask for additional bank statements, tax documents, or other missing paperwork while finalizing your loan.

Then, at least three days prior to the closing day you’ll get a document from your lender called the Closing Disclosure, which details things like your loan term, monthly payments, amortization schedule (e.g. how much of your payments go towards interest versus principal each month), the cash you’ll need at closing and more. 

Once you’ve read through and approved your Closing Disclosure, it’s time to get the keys!

7. Close on the home

On closing day, meet with your lender, realtor, attorney, and agent to sign essential documents for the home purchase. You’ll pay your closing costs, your lender will finalize the transaction and you’ll get the keys!

From here on out, your lender will let you know how to track and make your monthly mortgage payments. 

Pat yourself on the back for crushing your “final exam” of personal finance, and enjoy your new home. 

FAQs

How long does it take to get a mortgage?

Preapproval can take as little as one week while closing usually takes around 30 days.

How much mortgage can I afford?

Some say you shouldn’t spend more than 30% of your household’s combined, after-tax income on housing. So if you and your partner both make $5,000 a month, 30% of $10,000 is $3,000. 

Keep in mind that your preapproved amount is NOT your budget. It’s simply the maximum amount your lender is willing to approve.

What credit score is needed to get a mortgage?

For conventional loans, aim for a 620 FICO score; for government-backed mortgages, 580 is the minimum requirement.

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