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You’ve decided to buy a home. Hooray! Now you need a mortgage. Take a breath — it’s not every day you apply for a loan with that many zeros.
Preparation is key, because after your purchase offer is accepted, the clock is ticking. Closing a mortgage transaction takes about 43 days on average, according to data provider ICE Mortgage Technology, though certain loan types may take a little longer.
By familiarizing yourself with the mortgage application process, you can be prepared to hit the ground running.
What to do before applying for a mortgage
Review your credit report. You can access free reports from the top three credit reporting bureaus — Experian, Equifax and TransUnion — at AnnualCreditReport.com. You’ll want to check the report for errors and dispute anything that appears wrong, as this could be holding your score back.
You’ll also want to know where your credit score will likely stand with lenders. Scores in the most desirable range (720-850) are considered “excellent.” From there, scores in the 690-719 range are “good,” scores in the 630-689 range are “fair” and scores in the 300-629 range are “bad.” The higher your score, the more likely it is that you’ll be approved for a mortgage — and receive more favorable rate offers.
Explore different types of mortgages. This decision will largely come down to the rate, terms and requirements that best fits your needs.
For example, if you need a mortgage with flexible credit score requirements and a low minimum down payment, you might consider a loan backed by the Federal Housing Administration (FHA). If you know that you’re only planning on being in the home for a few years, you may be interested in taking advantage of the lower introductory rate that comes with an adjustable-rate mortgage.
Considering your own needs as a borrower will help you narrow your search and seek out the type of mortgage that is right for you.
Research and compare lenders. Shopping around and applying with multiple lenders will allow you to compare offers and find the lowest rate. NerdWallet’s roundup of the best mortgage lenders can be a great place to start your search.
Assemble your loan paperwork. This includes:
Personal information, like your Social Security number and ID.
Income verification, such as W-2s and pay stubs (or tax returns, if you’re self-employed).
Federal tax returns.
Proof of other debts and assets.
Get preapproved to borrow at a given loan amount. This is a sort of preliminary application that you’ll fill out before you start looking at homes. Lenders will review your personal information, such as your credit report, income documentation and assets, to evaluate how much you may be eligible to borrow.
The lender will provide you with a letter detailing these results. When you’re ready to make an offer on a home, this letter can boost the chances of your offering being accepted, since it shows the seller that you can secure financing.
Work with a real estate agent and find your home. Referrals and online searches can be great ways to find real estate agents in the area where you’re planning to move. You’ll want to interview a few until you find an agent that you feel comfortable with — especially if you’ll have unique needs.
For example, if you’re getting an FHA loan or a loan backed by the Department of Veterans Affairs (VA), the home has to meet certain requirements at the appraisal. An experienced agent can steer you toward homes that will meet these standards.
» MORE: How much house can you afford?
5 steps to applying for a mortgage
Now that you’ve researched lenders, applied for preapproval and found a home that you’d like to buy, it’s time to actually apply for the mortgage. All in all, the entire process from application to closing could take anywhere from two weeks to two months.
1. Fill out a mortgage application
If you’ve already gone through the preapproval process, you’ll use similar documentation to fill out an application. Like with preapproval, applying with multiple lenders will give you a range of rates and terms to choose from. As long as all of your applications are submitted within a 45-day window, they’ll count as only one hard credit inquiry — meaning that your credit score won’t be affected by applying with three or four lenders any more than it would be affected by one application.
Many lenders have application portals on their websites, allowing you to apply entirely online. If you’d prefer to talk with a person through the process, you may also be able to apply via phone or in person at a branch location, depending on your lender of choice.
It's a good idea to order a home inspection to assess the property’s condition immediately, even though lenders don't require it. You can get a fuller understanding of the condition of the home, and if something is found to be severely wrong, you may even decide to withdraw your offer. This will cost around $300 to $500.
By law, a lender has three business days after receiving your application to give you a Loan Estimate form, a detailed disclosure showing the offered loan amount, type, interest rate and all estimated costs of the mortgage, including hazard insurance, mortgage insurance, closing costs and property taxes.
2. Review your Loan Estimates
Applying to more than one lender has given you options. Now use your Loan Estimate forms to compare terms and costs. At the upper right corner of the first page you’ll see expiration dates for the interest rate — find out if it's “locked” or if it’s subject to change.
You’ll want to lock in your rate as soon as possible, as it must be done before closing. This ensures that there will be no surprises, and you’ll know exactly what you’re paying from your first bill.
You’ll also see a section detailing estimated closing costs. Ask the lender to explain anything you don’t understand.
The third page of the Loan Estimate includes a “Comparisons” section, which includes key information that you can use to compare offers:
Total cost in five years. This is all charges — including interest, principal and mortgage insurance — that you'll incur within the mortgage's first five years.
Principal paid in five years. This is the amount of principal you’ll have paid off in the first five years.
Percent paid in interest. This represents how much interest contributed to the final balance of the loan. It's not the same as the interest rate.
After comparing your loan estimates, choose the best fit and contact the lender to tell them you’re ready to move forward. They may ask for additional documentation. You’ll also want to purchase homeowners insurance, as you’ll need it before you can receive final approval.
3. Loan processing takes over
This stage involves reviewing the accuracy of your mortgage application, and every statement you made goes under the microscope. Your lender will order an appraisal of the property to ensure that its value matches the purchase price. Brace for questions and document requests, and respond promptly to keep everything moving forward.
You’ll want to avoid any moves that could disrupt your credit, as this could jeopardize your mortgage approval. Don’t open any new lines of credit or make any major charges, and pay all of your bills on time.
4. The underwriter makes a decision based on your documentation
Now that the lender has verified the information in your application, the underwriter will use it to judge the risk of lending money to you on this property.
What’s your loan-to-value ratio (the mortgage amount relative to the value of the home)?
Do you have the cash flow to make the monthly payments?
What’s your history of making payments on time?
Is the home valued correctly, the condition good and title clear?
Do you have a spotty employment history?
If the underwriter does not have enough information to make a decision on the loan, you may have to provide further documentation.
5. Your loan is cleared to close
In this final step, the lender must act before you can move forward.
With time to spare (hopefully) before your closing date, you hear from the lender with happy news: “You're cleared to close!”
The lender must send you another federally required form, the Closing Disclosure, three business days before your scheduled closing date. It shows the detailed and final costs of your mortgage.
Compare the Closing Disclosure with your Loan Estimate to see if any of the quoted fees or numbers have changed. If they have, ask the lender to explain. If you haven’t locked in your rate yet, you’ll want to do it now.
If you’ve chosen to pay closing costs all at once, now is when you’ll arrange to do so via wire or cashier’s check. Some borrowers wrap these fees into the total cost of the loan. Closing costs are typically between 2% and 6% of your loan amount. You can estimate this amount using NerdWallet’s closing cost calculator.