How to Get a Mortgage
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Getting a home loan isn't just a big step, it's an entire staircase — and it can take a long time to reach the top. There are times when the climb will feel dizzying, but knowing how to get a mortgage before you start can help you stay organized and feel more in control.
Ready to learn what it takes? Here's how to get a mortgage, step by step.
1. Give yourself a financial checkup
Before you set off to get a mortgage, make sure you’re financially prepared for homeownership. Do you have a lot of debt? What have you saved for a down payment? What about closing costs?
A thorough understanding of your income and debts will help you know exactly how much house you can afford.
Additionally, know that lenders look closely at your credit score when determining your eligibility for a mortgage. A score of at least 620 will qualify for most loan types, but lenders are more likely to approve you with a higher score — and you’ll also likely receive lower rate offers.
Check your credit score, and if it needs work, build up your credit before you begin applying for a home loan. That can include paying down outstanding debt, disputing errors on your credit reports and not opening any new accounts.
2. Identify the right mortgage
There are many types of home loans available. The one that’s best for you will depend on your financial situation and homeownership priorities.
Types of mortgages
Conventional loans are the most common loan type that you are likely to find among the largest selection of lenders. They have stricter qualification requirements compared with loans insured by the government, so they're a better fit for borrowers with strong credit. These loans allow for a down payment as low as 3%, but if your down payment is less than 20%, you’ll have to pay for private mortgage insurance, or PMI.
FHA loans are insured by the Federal Housing Administration. These loans can have more lenient credit score minimums and allow the use of gift money as part of the down payment. FHA loans have a minimum down payment requirement of 3.5%, and you must pay for mortgage insurance for at least 11 years.
VA loans are only available to active service members or veterans, and they're backed by the Department of Veterans Affairs. These loans often require no down payment.
USDA loans are a program of the U.S. Department of Agriculture. These zero-down-payment home loans are for borrowers below a set income threshold who live in qualifying areas.
Jumbo loans are for properties that exceed the loan limits of conventional loans. They offer a way to buy homes in more expensive areas.
In addition to choosing the type of loan you want, you’ll also have to decide whether you want to apply for a fixed or adjustable interest rate, and select the loan term that makes sense for your budget.
Fixed or adjustable rates
Fixed-rate mortgages are popular because the mortgage interest rate doesn’t change over the life of the loan. The rate to which you initially agree will be the rate you keep until you sell the home or refinance.
Adjustable-rate mortgages (ARMs) have introductory rates that start out fixed, but can then fluctuate. If ARM rates are lower than fixed when you're home shopping, and you don't plan to stay in the home long, an adjustable-rate mortgage could yield savings.
Mortgage terms
A 30-year mortgage is the most common term. Monthly payments are generally smaller, but you’ll pay more interest overall than you would with a shorter-term loan.
Shorter-term house loans, like 10- or 15-year mortgages, are also available. You pay less interest, but monthly payments are generally larger.
» MORE: Use our mortgage calculator to estimate your monthly mortgage payment
3. Research mortgage lenders
Look at multiple home loan lenders to find the one for you. There's a wide array of lenders to consider, including traditional banks, online non-bank lenders and credit unions. Consider starting with your own bank or credit union. Some offer lower interest rates for existing customers.
If you're looking for a particular type of mortgage, you may want to zero in on specialty lenders. For example, if you know you want a VA loan, a lender that focuses on working with military borrowers may best fit your needs.
4. Get preapproved for a home loan
There are a couple of big advantages to getting a mortgage preapproval. One, it shows sellers that you can make a solid offer up to a specific price. Two, it helps you figure out what your mortgage will really cost, since you'll get details on the rate, APR, fees and other closing costs.
It's smart to get preapproved by at least three lenders, as comparing rates could potentially save thousands of dollars over the life of the loan.
5. Submit your application
Even if you’ve been preapproved, you’ll have to submit your most recent financial information when you formally apply for a home loan. This can include:
W-2 forms and tax returns from the past two years.
Pay stubs from the past 30 days.
Proof of other sources of income.
Recent bank statements.
Details on long-term debts such as car or student loans.
ID and Social Security number.
Documentation of sources for recent deposits in your bank accounts.
Documentation of any gifts or other funds used for your down payment.
There may be other kinds of documentation required, depending on the type of mortgage you’re getting.
If you’re self-employed, you may have to provide extra proof of your financial stability, including having a higher credit score or large cash reserves, and possibly providing business tax returns.
Within three days of receiving your application, your lender will give you an initial loan estimate, which includes:
How much the loan will cost.
Associated fees and closing costs, including information on which costs you can shop for.
Interest rate and APR, or the annual cost a borrower pays for a loan, including certain fees, such as discount points.
6. Begin the underwriting process
The lender will take a look at your updated credit report and order a home appraisal, which tells the lender the market value of the home.
Meanwhile, you will schedule a home inspection, which will look for any defects in the home. Depending on how it goes, you may negotiate with the seller for repairs or a lower price before closing.
During the underwriting process, you'll want to avoid making changes to your finances, such as switching jobs or taking out another line of credit. Same goes for large purchases that increase your debt, such as buying a car. Increasing your debt can lower your credit score, which could make the loan costlier — or even jeopardize your qualification.
7. Prepare for closing
Finally, your loan is approved! But you’ve got a few more steps to take before the process is complete.
Purchase homeowners insurance. Your lender will require you to do this. Shop around for the best policies.
Buy a lender’s title insurance policy. And while it’s not required, it’s wise to also purchase owner’s title insurance. Both policies offer protection in case there are problems with the title to the property down the road.
Do a final walk-through of the home. Make sure nothing has changed (and any agreed-upon repairs have been made) since the home inspection.
Review your updated loan estimate and closing disclosure. You'll get this three days before the scheduled closing date. Compare these new documents to what you got when you were initially approved, so you can see if and how any costs have changed unexpectedly.
Get funds for your cash to close. Depending on what your lender requires, you may need a cashier's check from your bank or a wire transfer to pay the final closing costs. Typically, you’ll pay between 2% and 5% of the home’s purchase price in closing costs. You can estimate your expenses using a closing costs calculator.
8. Close on the home
You’re almost done!
If you start having serious second thoughts at this point, you can still walk away. However, you might lose your deposit — also called earnest money — if you decide not to close.
Don’t be afraid to ask questions of your lender. Getting a mortgage comes with a lot of paperwork. Take the time to understand it all. Know what you’re signing and what you’re paying.
And that’s it — you made it to the top, and the loan is yours. It’s finally time to move into your new home!
» MORE FOR CANADIAN READERS: How does a mortgage work?
