How to Apply for a Mortgage

Buying your first home is an important financial milestone, but applying for a mortgage can be a complex process, especially if you’ve never been through it before. Understanding how applying for a mortgage works, how long it takes, and how to put yourself in the best position to get approved can help you have a smoother home-buying experience.

Learn more about the step-by-step process of applying for a home loan, the role of credit score and income, and what you can do to prepare for this rite of passage.

How to Apply for a Mortgage

The application process for a mortgage can vary depending on the lender, but in general, you can expect it to follow these steps.

1. Fill out the mortgage application: This step includes completing paperwork and submitting documentation digitally, over the phone, or in person.
2. Receive your loan estimate: The lender will break down the loan details including interest rate and expected closing costs.
3. Officially accept the loan offer and shift to underwriting: If you agree to the loan terms, the lender takes over to verify your finances.
4. Respond to mortgage underwriting questions and documentation requests: Answer quickly to keep the process moving along.
5. Receive an official decision from the mortgage company: After underwriting is complete, you will be officially approved or denied.
6. If cleared to close, prepare for your closing date: Review the closing disclosure so there are no surprises.
7. Close and become a homeowner: Sign all of the paperwork and accept the keys to your new home.

Preparing to Apply for a Mortgage

Before filling out a mortgage application, you can take a few key steps to help ensure that you’re in a good position to qualify for a home loan. Understanding the basic requirements for loan approval in advance gives you time to make adjustments and improvements to your finances, and allows you to set realistic expectations. 

Before you apply for a home loan, you can:

• Check your credit: Credit score and history are some of the main factors that lenders will consider when you apply for a mortgage. The better your credit, the better chance your mortgage will be approved and the better interest rate you can get. Scores in the good to excellent range (above 720) will put you in the best position to qualify for a mortgage with favorable terms. Some loan programs are open to people with lower scores. However, if you can delay homebuying, you can work to improve your credit score by making sure your bills are paid on time, your balances are paid down, delinquencies are cleared, and any errors are fixed.
• Review your budget: Start by totaling how much money you have coming in (income), how much is going out (your monthly debt obligations), and see how much is left over. Then, use a mortgage calculator to figure out how much you can afford in home expenses. 
• Gather your documents: As part of the mortgage process, you’ll need to submit documentation regarding your finances. So it’s a good idea to locate paperwork or digital copies of documents you might need. You’ll also need a government-issued ID and a Social Security card.
• Get pre-approved: Before you work with a real estate agent to look for homes, getting a pre-approval letter from a lender can show sellers that you’re a serious buyer. Though it’s not a guarantee that you’ll be officially approved for a mortgage, having a pre-approval letter means a lender has assessed your credit and income information.
• Go house-hunting: Look for homes that are priced within your budget. Once you find a potential home, you can make an offer to the seller.
• Get a home inspection: After your offer is accepted but before you apply for your mortgage, it’s recommended to have the prospective home inspected to make sure it is in good condition.
• Compare lenders and loan types: It’s a good strategy to shop a few different lenders to compare interest rates. You can also explore the different types of loan products to see which one is best for your situation. Some options include conventional loans, FHA loans, VA loans, and jumbo loans. Apply to a few lenders and select the one that’s best for you.

Documents You Need for a Mortgage Application

• Identification: Driver’s license or passport
• Tax returns (in some cases)
• Proof of income: W-2s, paystubs, 1099s
• Additional income: Alimony, child support, or rental income receipts
• Proof of assets: Bank statements, stocks and bonds
• Explanation letters (if applicable)

Applying for a Mortgage

Once you’ve done your research, found a home, and understand your financial situation, you’re ready to move forward with your mortgage application. Follow these steps.

Fill Out the Mortgage Application

If you’re applying online, just fill in the fields of the application form. If you’re applying over the phone or in person, a mortgage professional will ask you questions and fill it in for you. The form will begin with your basic contact information, questions about income and assets, the type of mortgage you are looking for, the amount, and the term. 

Receive Your Loan Estimate

After applying, the lender will provide you with a loan estimate. This document is a breakdown of all the loan details including interest rate and expected closing costs. It will also specify the expiration date of the interest rate and your options to lock in the rate. The lender will also provide information regarding how much the loan will cost you in principal and interest after five years. 

Officially Accept the Loan Offer and Shift to Underwriting

If you agree to the loan terms, the next phase of the mortgage process begins, with the lender taking over to verify your finances. This is known as underwriting. Loan underwriters will comb through your application and reach out to you with additional questions. Sometimes they will ask for supporting documents. 

Respond to Mortgage Underwriting Questions and Documentation Requests 

Answer the underwriter’s questions quickly to keep the process moving along. Questions may arise about past employers (if you changed jobs) or your various sources of income. You may need to provide more recent documents. The underwriter will be trying to determine if you have ample income and assets to make your mortgage payments. They will consider the loan-to-value ratio, which is the percentage of the home price you need to borrow. 

They will also look over your outstanding debts and credit history and see if you’ve had steady employment or income sources. 

Also during this time, a home appraisal will be scheduled to determine the home's value to make sure the sales price is reasonable. 

Receive an Official Decision From the Mortgage Company

After underwriting is complete, you will be officially approved or denied. If you are approved, your team will work with the seller to determine a closing date. 

If Cleared to Close, Prepare for Your Closing Date

At least three days before the sale, you’ll receive a closing disclosure, which lists all of the closing costs. Review it carefully, check for errors, and compare it to your original loan estimate.

Close and Become a Homeowner 

Before closing day, you’ll have a chance to do a walk-through of the home to make sure it’s in the same condition it was when you signed the contract. If all goes well, you’ll attend the closing. Expect to sign a lot of the paperwork, and when it’s all finished, you will officially be a homeowner. 

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Applying for a Mortgage in Special Situations

The mortgage process can be tedious, but it’s fairly straightforward in most cases. However, if you have unique financial circumstances, it may require some extra steps or seeking alternative mortgage programs.

One example is if you are buying a home and you are self-employed. Without a steady salary from an employer, you may have to prove to the lender that you will be able to generate ample income to make your home loan payments. Expect to share at least two years’ worth of tax returns, business profit and loss statements, client invoices, and other items that could be helpful to the underwriter.

In some cases, you may need a letter of explanation to address concerns such as large deposits, gaps in employment, or past credit troubles.