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How to apply for a mortgage

The mortgage application process can be complicated, but it’s easier if you’re prepared

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You probably already know a mortgage is a loan used to buy a home. However, you might not know that most lenders will let you know if you pre-qualify for a mortgage, showing you the rates and terms you can get — with no impact on your credit score. This can be a great way to find the right mortgage lender for you, with the best possible rates and terms.

While the mortgage application process can take time, it’s easier if you prepare for it early, even before you start shopping for a home. By taking the time to see if you’re pre-qualified, you’ll be better prepared to find a home that fits your budget.

Once you know how much you can afford, your lender can get you formally preapproved. When they see a preapproval letter included with an offer, sellers are usually more willing to accept, and you can close faster.

Doing a little work upfront to prepare for a mortgage will make the application process much more manageable.


Key insights

  • Lenders consider your credit profile, income, job history and the property details when evaluating your mortgage application.
  • Pre-qualifying for a mortgage early in the process allows you to see how much you can afford and the rates you can get — usually with no credit score impact.
  • Sellers are more likely to accept your offer and closing is quicker if you get preapproved for a mortgage before shopping for a home.

What requirements do I need to meet to get a mortgage?

When evaluating your mortgage application, lenders focus on several key areas: credit score, credit history, amount and stability of income, debt-to-income ratio, cash reserves and other assets, the property type, and your down payment. You’ll need to meet the mortgage lender’s requirements in most or all of these areas to get approved for a mortgage.

Some of the most important factors lenders evaluate before approving your mortgage are:

  • Credit score and history: You usually need a credit score of at least 620 to qualify for a conventional mortgage, but lenders allow lower scores on government-backed loans. The lender will also evaluate how long ago any significant derogatory credit events occurred (e.g., bankruptcies, foreclosures).
You typically need a credit score of 620 to qualify for a conventional mortgage, but it’s possible to qualify for other home loans with a lower score.
  • Job history: Most lenders want to see at least two years of stable job history. Depending on the lender, time spent in school may qualify as job history. If you’re self-employed, you’ll need to show at least two years of stable income.
  • Debt-to-income (DTI) ratio: Your income documentation usually needs to show a DTI ratio of no more than 36% to 43%. However, some lenders may allow a DTI as high as 50%. Your existing debt and new mortgage are included in this calculation.
  • Cash reserves and other assets: You need to show that you have enough cash for the down payment. Additionally, you often need enough remaining cash or marketable securities to cover two to six months of mortgage payments.
  • Property type: Some lenders don’t finance purchases of certain property types, like manufactured or very old homes. As such, you’ll need to provide details about your property type when applying for a mortgage.
  • Down payment: Depending on your loan type, you may need a down payment of as little as 0% (VA and USDA loans), but it could be as high as 20%. The lender will order an appraisal to confirm the sufficiency of your home’s equity or down payment.

Most mortgage lenders evaluate your entire application when approving you for a mortgage. Weaknesses in one area don’t necessarily mean you can’t get approved. For example, a lower credit score may be offset by a higher down payment.

Lenders tend to have less strict qualifications for government-backed loans, including FHA, VA and USDA loans. FHA loans are common among first-time homebuyers, while VA loans are for active-duty service members and veterans, and USDA loans are for those seeking to buy a property in a rural area.

What documents do I need to apply for a mortgage?

Most of the documents you need to apply for a mortgage will show your lender the amount of income you earn regularly, the amount of cash you have on hand and details about the property you want to purchase.

The documents you need to give your lender when you apply for a mortgage typically include:

  • Two years of tax returns
  • Two years of W-2s
  • Two recent pay stubs
  • Two years of 1099s, or profit and loss statements if you’re self-employed
  • Divorce decrees
  • Legal documentation for child support and alimony income
  • Two months of bank statements and investment account statements
  • Real estate purchase contract or construction contract

How do I apply for a mortgage?

You can apply for a mortgage by taking the following steps:

  1. Evaluate your financial situation. The type of mortgage you need will vary based on your circumstances, so it’s important to think about this upfront. For example, first-time homebuyers and veterans may benefit from a low-down payment, government-backed FHA or VA loan. People with poor credit need a lender willing to work with credit issues.
  2. Search for a mortgage lender. After considering your circumstances, you need to shop for a mortgage lender. Many lenders offer mortgages that fit a variety of needs. If you aren’t sure exactly what loan you need, your lender can suggest the best mortgage type for your situation.
  3. Apply online and get pre-qualified. Once you’ve identified a lender, the next step is to apply online. After you input some basic personal information, most lenders will perform a soft credit check (no credit score impact) and evaluate your self-reported income to see if you qualify.
  4. Review your preliminary mortgage options and make a selection. If you pre-qualify for a mortgage, the lender will share the rate and term options available to you. You’ll select the one that’s best for your situation, and your lender will transition to the preapproval process.
  5. Gather the necessary documents. As soon as you decide to move ahead with the mortgage, your lender will do a hard credit check (this will impact your credit score) and give you a list of required documents. Common documentation requirements include tax returns, pay stubs, W-2s and bank statements.
  6. Get preapproved. Once you’ve provided all the required documents, the lender will complete the credit and income verification process. Assuming the information you initially reported is accurate, this process is usually relatively quick. Once preapproved, you’ll receive a preapproval letter to include with your purchase offers.
  7. Find a property and make an offer. You’re now ready to shop for your home and make a purchase offer. A best practice is for your real estate agent to include the preapproval letter with your purchase offer, which will help you stand out as a financially solid buyer.
  8. Receive final loan approval. After your offer is accepted by the seller, you’ll provide the purchase contract to your lender. The lender will review the offer and property details, order an appraisal and finalize your loan details. Once this is done, you’ll receive final loan approval.
  9. Close your loan. The last step is to make your down payment, sign the paperwork and close your loan. Depending on where you live, a real estate attorney or title company will typically assist your lender with the loan closing. When your loan is closed, you’re ready to move into your new home.

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    Reasons why a mortgage application is rejected

    Some common reasons for a mortgage application rejection include not meeting the lender's qualifications, insufficient income documentation, an inaccurate application or unavailable financing for the property type.

    • Qualifications aren’t met: Your application may be rejected if your credit score is too low, there are problems with your credit history or your DTI ratio is too high. Remember, many lenders offer quick pre-qualification with no impact on your credit score. This can be a good way to see if you qualify early in the process.
    • Income documentation isn’t stable or sufficient: Even if you have good credit, lenders must ensure you have enough income to repay the mortgage and your existing debt. If you can’t show that your income is stable and sufficient, your mortgage application may be rejected.
    • Inaccurate application information: Most lenders will pre-qualify you based on self-reported income information and a soft credit check. If the information you provide on the application is significantly different from reality, your application may be rejected. To avoid this, be sure to accurately report your financial condition.
    • Property type isn’t supported: Not all lenders work with every type of property. For example, many lenders won’t finance manufactured homes, fixer-uppers needing major repairs, new home construction or very old homes. Check with your lender before applying to see if your property type is supported.
    Learn all the requirements before you apply for a mortgage to give yourself the best chance of getting approved.

    Jay Dacey, president of Jay Dacey Mortgage Team, a broker in St. Paul, Minnesota., said, “The biggest mistake we see prospective clients make is they start by calling multiple companies to get the lowest interest rate quote before they do an actual application.”

    While it’s important to search for the best possible rate, the problem with focusing on rates too early in the process is the lender may not offer mortgages that fit your needs. For example, the lender may only offer financing to people with good credit and large down payments.

    To avoid having your mortgage application rejected because you don’t qualify, learn about the requirements before applying. “The best thing a client can do is to take the time to consult with a mortgage professional and fill out their application upfront,” Dacey said.

    Many lenders will check to see if you pre-qualify using a soft credit check, which doesn’t affect your credit score. This is a quick way to see if you meet the basic requirements without going through the full application process.

    FAQ

    Can I lock in my interest rate on my mortgage?

    Most lenders allow you to lock in the interest rate on your mortgage 15 to 60 days before the loan closes. Depending on your situation, you may be able to lock in your rate even longer. For example, some lenders will allow you to lock in your interest rate for a year on a new home construction loan.

    How is preapproval different from pre-qualification?

    With a pre-qualification, the lender collects basic information about your credit, income, down payment and the property price to preliminarily check if you meet its qualifications. There’s usually a soft credit check (no credit score impact), and you don’t provide supporting documentation. A preapproval differs from a pre-qualification, requiring a hard credit check and documentation supporting your income and assets. Preapproval is a step closer to loan approval; once you’re preapproved, the lender gives you a preapproval letter that you can include with an offer to purchase.

    What is mortgage insurance?

    Mortgage insurance protects the lender in case you fail to repay a loan. It is typically required for a borrower with a down payment of less than 20% on a conventional loan and for FHA loan borrowers. Depending on the loan, you might pay mortgage insurance upfront at closing, monthly or both.

    Do I need to apply for a mortgage in person or online?

    Depending on the lender, you can apply for a mortgage online or in person. Most lenders accept online applications. If the lender has an office or branch in your area, you may also be able to apply for a mortgage in person.

    Can I reapply for a mortgage if my application is denied?

    You can reapply for a mortgage if your application is denied, but it may be rejected again if you don’t address the reason for the decline. If you are denied because of your credit history, for example, you will need time to make changes to improve your score or address errors on your credit report.

    Bottom line

    Mortgage lenders consider many factors when deciding to lend someone money for a home. Many mortgage lenders will allow you to see if you pre-qualify by evaluating your self-reported income, credit score and down payment amount without a hard credit inquiry. This is a good way to find out what rate you might pay and how much you might be able to borrow.

    After you’re pre-qualified, the next step is to get preapproved for the mortgage. Consider getting preapproved before shopping for your home; that way, you can show the seller a preapproval letter from the lender, and the path to closing after an accepted offer will be easier.

    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. To learn more about the content on our site, visit our FAQ page. Specific sources for this article include:
    1. Federal Deposit Insurance Corporation, "Applying for Your First Mortgage Loan." Accessed Dec. 16, 2022.
    2. USAGov, “Help Buying a New Home.” Accessed Dec. 16, 2022.
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