{"id":2311,"title":"How to Get a Mortgage","slug":"how-to-get-a-mortgage","lang":null,"description":"Not sure how to get a home loan? Here's a step-by-step guide.\n\nGetting a home loan can be a confusing and stressful process to navigate, but knowing what to expect before you apply can help you stay organized and feel more in control.","content":"

1. Give yourself a financial checkup

First, 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. Ideally, your monthly debt payments should be less than 43% of your income, though some lenders allow for up to 45% or even 50% in some cases. This is called your debt-to-income ratio, or DTI. If this amount is 36% or less, you’re more likely to qualify for a low interest rate.

Lenders will also look closely at your credit score. 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 see if it needs work 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 mortgage that’s best for you will depend on your financial situation and homeownership priorities.

Conventional loans

Conventional loans are the most common type of mortgage and are offered by a wide range of lenders. They have stricter qualification requirements compared to government-backed loans, so they're generally best 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

FHA loans are insured by the Federal Housing Administration and have more lenient credit score requirements compared to conventional loans. The FHA permits scores as low as 500, though having a lower score means you’ll need to make a higher down payment. Here’s how the down payment requirements break down by score:

500 to 579: Must put at least 10% down
580 and up: Must put at least 3.5% down

These loans also come with mortgage insurance premiums (MIP), which include:

An upfront MIP: This is due when you close on the loan. You can also opt to roll this into your loan principal.
An annual MIP: This is divided and added to your monthly payments. If your down payment is less than 10%, you’ll pay this for the life of the loan. But if your down payment is 10% or more, this MIP will drop off your loan after 11 years.

VA loans

VA loans are backed by the Department of Veterans Affairs and are only available to active service members, veterans and some surviving spouses. These loans have no down payment requirements. The VA doesn’t set a minimum credit score; lenders are free to set their own credit requirements. The higher your score, the better your rate offers will be.

USDA loans

USDA loans are backed by 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

Jumbo loans are for properties valued above the conforming loan limit of $832,750 (or $1,249,125 in certain high-cost areas).

Since these loans aren’t backed by Fannie Mae or Freddie Mac, they’re riskier for lenders to offer. Because of this, jumbo loans tend to have stricter requirements — for example, you’ll likely need a credit score in the 700s and a higher down payment (usually at least 10% or 20%).

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 than payments with a shorter-term loan, 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.

3. Research mortgage lenders

Before you start looking at homes, shop around with at least three home loan lenders. 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 after your offer is accepted on a house and 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.

🤓Nerdy Tip

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 business 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. Lock your interest rate

Mortgage interest rates can fluctuate — sometimes daily or even hourly. So it can be wise to lock in a rate you’re comfortable with once you’ve been approved for a home loan. This way, you won’t have to worry about your rate changing before your mortgage closes.

Mortgage rate locks typically range from 30 to 60 days for standard purchase mortgages. Note that you might have to pay a fee to lock your rate, depending on your lender. You could also be charged a fee if your rate lock expires before your loan closes and you want to extend the lock. Be sure to check with your lender so you’re aware of any charges.

Also keep in mind that your rate could still shift if there are changes to your application, even with a rate lock. For example, your rate might shift if your qualifying income drops or credit profile weakens before your loan closes.

7. 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 you’re buying.

Meanwhile, you’ll 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.

8. 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 the lender’s title insurance policy. And although it’s not required, it’s wise to also purchase your own title insurance. Both policies offer protection in case there are problems with the home’s title.
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 6% of the home’s purchase price in closing costs. You can estimate your expenses using a closing costs calculator.

9. 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. Read every document closely before you sign. Know what you’re signing and what you’re paying.

And that’s it — once you’ve signed, the loan is yours. You can finally start settling into your new home (and managing your mortgage payments).

Frequently Asked Questions

How can I increase my chances of getting a mortgage?

You can boost your chances of mortgage approval by paying down structured debts, like car loans, and limiting your credit card usage.

You can also save up a larger down payment. Putting down more cash upfront makes you less of a risk in lenders' eyes. Working to build up your credit score can help, too, both with qualifying for a home loan and getting a better rate.

Which loan is best for first-time home buyers?

First-time home buyers may benefit from loans with low down payment and credit score requirements. Some lenders for first-time home buyers offer loans that are especially for newbies. Many states and some cities also have first-time home buyer programs.

What kind of credit score do you need to qualify for a home loan?

A credit score of 620 is generally the credit score you need to buy a house. Some government loans allow for lower scores, though in order to qualify with a score under 620 you'd likely need otherwise solid financials or a co-borrower with a stronger score.

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