How to Get a Mortgage

Understanding the mortgage application process

Before you start browsing properties on Zillow, make sure you fully understand how the mortgage application process works and what you need to prepare.

Most people get preapproved first to better understand how much they can borrow and set a realistic house-hunting budget. To get preapproved, you typically need to submit some financial documents to your lender. Your lender will use that information to estimate how much you qualify to borrow.

Once you receive your preapproval letter (which is usually valid for 60 to 90 days), you can start touring homes to find the ones that fit your budget.

After choosing a home, make an offer, apply for your mortgage, schedule a home inspection, pay closing costs and, finally, close on the property.

» COMPARE: Top-ranked lenders for first-time homebuyers

Required documents for mortgage approval

Lenders need to make sure you can repay the loan, so they’ll ask for proof of your finances. The required documents include, but are not limited to, the following:

• Pay stubs from the last 30 days
• W-2 forms from the past two years
• Bank statements from the past two months
• Proof of life insurance cash value, if applicable
• Employer names and contact details for the past two years
• Business records if self-employed
• Documentation of any additional income

Depending on your situation, lenders might ask for other information, like divorce papers, down payment gift letters or information about other real estate holdings.

Locking in your interest rate

Once you’ve submitted all the necessary documents and are approved for a mortgage, your lender might offer the option to lock in your interest rate. This means your rate won't change for a set period (typically 30, 45 or 60 days), even if the market shifts.

You may want to lock in your interest rate if you’re worried about potential fluctuations in interest rates before your closing date or general rising rates that could affect your purchase.

If your rate lock expires before closing, you may have to pay to extend it or accept a new and possibly higher rate. Ask your lender to walk you through the terms and deadlines so you understand what’s included, what happens if your rate lock expires and whether there’s a fee to extend it.

» LEARN: What is mortgage fraud?

Exploring government-backed home loans

Even though the most common type of mortgage is a conventional loan, it may not make the most financial sense for you. Before submitting your mortgage application, take the time to understand other options that may be a better fit, like government-backed home loans.

Government-backed loans are home loans guaranteed or insured by a federal agency, which makes them less risky for lenders and often more accessible for borrowers. And because of that, they often come with lower down payment requirements, more flexible credit guidelines and lower rates.

The three most popular types of government-backed loans are FHA, VA and USDA loans:

• FHA loans: FHA loans are mortgages insured by the Federal Housing Administration, and they’re a popular option for first-time buyers. You can qualify for an FHA loan with a credit score of 580 and only make a 3.5% down payment.
• VA loans: VA loans are offered by the Department of Veterans Affairs and are designed for eligible veterans and active-duty service members. Typically, these loans require no down payment or mortgage insurance.
• USDA loans: USDA loans are offered by the United States Department of Agriculture to help low-income residents who want to buy homes in rural areas. If you meet the income limits and location requirements, you could qualify for a no-down-payment mortgage.

» LEARN: What are the benefits of first-time homeownership?

Tips for first-time homebuyers

Buying your first home is a big step, and it’s perfectly normal if you’re not sure what to expect. These tips can help you get prepared:

Clean up your finances

Lenders will look at your overall financial health to determine the interest rates you’ll qualify for and whether you get approved at all. So, before applying for a mortgage, get your finances in order to increase your chances of approval. “Keep your debts low, save your money and keep your credit clean. If buying a home while getting a good rate is the goal, make that your priority,” White said.

Start saving what you can

How much you need to put down on your dream home depends on the home’s price and your loan type, but most mortgages require at least some money upfront, usually starting at 3%.

You’ll also be responsible for closing costs, which are typically anywhere from 3% to 6% of the loan amount. So if you’re thinking about buying a home in the near future, start setting aside money now.

Know your credit health

You’ll want to check your credit score early so you can fix any issues before applying for a mortgage. Most conventional loan lenders want to see a credit score of at least 620, but higher is generally better.

Your credit score affects your loan options, your interest rate and how much house you can afford. If you haven’t already, head to annualcreditreport.com and order a free copy of your report from each of the three major credit bureaus.

Look into first-time buyer programs

Plenty of national, state and local programs are designed to help first-time buyers. For example, the National Homebuyers Fund helps cover down payments and closing costs up to 5% of your loan amount.

California is just one example of a state with multiple options for new buyers. If you’re in California, you might qualify for the MyHome Assistance Program, which offers a deferred loan of up to 3.5% of the home’s price to help with upfront costs. It works alongside CalHFA loans, which are low-interest mortgages for first-time buyers offered through the California Housing Finance Agency. No payments on the MyHome loan are due until you sell, refinance or pay off your mortgage.

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