How to Apply for a Mortgage

How do I apply for a mortgage?

Mortgage lenders consider many factors when deciding to lend someone money for a home. Many mortgage lenders will allow you to see if you prequalify 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 prequalified, 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.

Here’s how to apply for a mortgage, start to finish.

Step 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.

Step 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.

Step 3: Apply online and get prequalified

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.

Step 4: Review your preliminary mortgage options and make a selection

If you prequalify 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.

Step 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.

Step 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.

Step 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.

Step 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.

Step 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.

» MORE: How to buy a house

Types of mortgage loans

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.

Conventional loans

Conventional loans are mortgages that aren’t insured or guaranteed by the federal government. They’re offered through private lenders and typically require higher credit scores and larger down payments than government-backed loans.

Most conventional loans follow standards set by Fannie Mae and Freddie Mac, which makes them eligible for competitive interest rates. Borrowers with credit scores of 620 or higher can often qualify, and putting 20% down helps avoid private mortgage insurance (PMI).

Conventional loans are best for borrowers with stable income, good credit and savings for a larger down payment.

FHA loans

FHA loans are insured by the Federal Housing Administration and designed to help first-time and moderate-income buyers qualify for homeownership. These loans allow down payments as low as 3.5% and accept credit scores as low as 580, making them more accessible than conventional loans.

However, FHA loans require mortgage insurance premiums (MIP) for the life of the loan, which adds to long-term costs. They’re ideal for buyers with limited savings or less-than-perfect credit who want a manageable path to owning a home.

VA loans

VA loans are guaranteed by the U.S. Department of Veterans Affairs and available to active-duty service members, veterans and eligible surviving spouses. These loans often require no down payment or private mortgage insurance, and they typically feature lower interest rates than other loan types.

VA loans can also have more flexible credit requirements and limited closing costs. They’re a strong choice for qualified borrowers who want to buy or refinance a home with favorable terms and minimal upfront costs.

USDA loans

USDA loans are backed by the U.S. Department of Agriculture and meant for low- to moderate-income borrowers purchasing homes in eligible rural and suburban areas. These loans offer zero-down-payment options and reduced mortgage insurance costs, making homeownership more affordable outside major cities.

To qualify, buyers must meet income limits based on location and property eligibility standards. USDA loans are ideal for those seeking affordable housing in qualifying rural communities.

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 (DTI) 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:

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.

• 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).
• 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.
• Acceptable 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. Consider having multiple borrowers on a mortgage to possibly increase your chances of approval.

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

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 prequalification 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 prequalify 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.

Mistakes to avoid when applying for a mortgage

“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,” said Jay Dacey, president of Jay Dacey Mortgage Team, a broker in St. Paul, Minnesota.

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 prequalify 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.

» MORE: 9 ways to improve your credit score