How to Get a Mortgage

Getting a mortgage is a huge step for new homebuyers. Buying and financing a home is one of the biggest financial decisions in anyone’s life, and it’s likely the largest purchase you will ever make. Understanding interest rates, terms, and qualifying requirements is essential. 

For instance, should you apply for a conventional loan or an adjustable-rate mortgage (ARM)? Do you need to find a mortgage broker? Weighing wants against needs and focusing on logical choices instead of emotional ones can make the process easier. Read on to learn how to get a mortgage in eight simple steps. 

How to Get a Mortgage in 8 Steps

Getting a mortgage requires some persistence and research. The best mortgage lenders for first-time homebuyers can help guide you. Here are the steps you should take.  

Step 1: Get Your Financial House in Order

Getting your financial house in order is essential when buying a home. For example, considering your total budget and economic goals, it is crucial to set a budget for how much you can afford. To determine how much you can afford, consider total debt and income. Aim to pay no more than one-third of your total income for debt.  

For example, if you make $10,000 a month, aim to spend no more than $3,300 on mortgage payments plus any other debt payments you have. 

It's also essential to get your credit report and check for inaccuracies. You are entitled to a free credit report from all three credit bureaus at annualcreditreport.com.  

A score of 640 is typically the minimum accepted credit score for most mortgage loans. If you have a score on the lower end of the spectrum, expect to pay more interest at a higher rate.  

To improve your credit score, you can pay off or pay down any unsecured debt, especially credit cards. You can also determine if your score needs to improve. Unfortunately, the only remedy for late payment histories is time. You must make consistent, on-time payments over an extended period to raise your credit score.

How a Lender Determines What You Can Afford

Lenders determine whether or not you can afford a mortgage payment by calculating a debt-to-income ratio.  A higher debt-to-income (DTI) could mean your loan poses a higher risk, which might mean you get a higher rate.

Debt to Income Calculation

Add up the minimum monthly payments on ALL debt (car payments, installment loans, credit cards, deferred student loans 1% of balance).  Also, include the new mortgage principal, interest payment, and the monthly figure for taxes and insurance.

Income is your monthly gross pay before any deductions.

DTI = (total debt/income) * 100

35% or less is optimal, 36% to 49% could use some work, and 50% or higher can mean you won’t be approved.

Step 2: Determine the Right Mortgage

You can choose from various types of mortgages, including conventional, FHA, USDA, VA, or jumbo loans. You can also look at mortgage terms from 15 to 30 years. 

Mortgage Types

Here is an overview of the most common types of mortgages. 

• Conventional loans: Conventional mortgages may require a higher credit score and down payment than mortgages backed by a government agency. 
• USDA Loans: A USDA home loan is backed by the U.S. Department of Agriculture and is available for people who want to buy a home in a rural area. You can check the USDA's website to see which areas are eligible. To qualify, your household income should equal or less than 115% of the area's median income. 
• FHA Loans: An FHA loan is a mortgage insured by the Federal Housing Administration that allows first-time homebuyers to purchase, renovate, or build a house. 
• VA Loans: The Department of Veterans Affairs backs VA loans with no down payment requirement. 
• Jumbo Loans: A jumbo mortgage is a mortgage loan for an amount higher than standard conforming loan limits. For 2024, the upper limit is $766,550 to $1,149,825, based on location. 

Mortgage Rates

Mortgage rates can be fixed or variable. 

• Fixed-rate mortgage: A fixed-rate mortgage will have the same annual percentage rate (APR) for the duration of the loan. 
• Adjustable-rate mortgage: An adjustable-rate mortgage will readjust interest rates or APR regularly. For example, a 5/1 adjustable rate mortgage has a fixed rate for the first five years, and the interest rate readjusts once a year. 

Mortgage Terms

• 30-year mortgages: A 30-year mortgage is the most common term, lasting 30 years. 
• 10- or 15-year mortgages: A 10 or 15-year mortgage term means you can save significantly on interest over the loan's lifetime. You'll own the home outright sooner, but you'll also need to pay substantially more in monthly mortgage payments. 

Step 3: Research Mortgage Lenders

It's a good practice to research and compare multiple mortgage lenders to get the best rates. You can compare APR, fees, customer service, and lender reputation. To start, compare lenders online and check local banks and credit unions. 

Compare the Best Mortgage Lenders from Benzinga’s Top Providers

Compare some of Benzinga's top mortgage lenders here!

Step 4: Secure Preapproval for a Home Loan

Applying for a mortgage starts with preapproval. If all your ducks are in a row, including that you have worked to improve your credit score, you can prepare for that application process. It is best to get the documents you need for mortgage preapproval together and have them ready. 

Note that mortgage preapproval is different from prequalification. When you get preapproved for a mortgage, you show Realtors and homeowners that you're prepared to buy and have preapproval for the homes you're considering. Finalizing a mortgage could go faster without major issues. You could get preapproval in as little as a day, which usually takes a week or less. 

Step 5: Begin Searching for a New Home

You can begin searching for a house while waiting for the preapproval. Be sure to work with a trusted real estate agent and focus on the neighborhoods, areas, or amenities that are your priorities. Filtering your search to key priorities can help save time and hone in on the properties you will likely want to consider. 

Step 6: Prepare and Submit Your Loan Application

Next, you'll want to prepare all the documents to submit and finalize your mortgage application.  A lender can’t close your loan without the proper documentation, and a failure to provide information promptly could cause closing delays. Therefore, it's essential to get all the requested documentation promptly. 

• Income: The last two pay stubs show the pay period, YTD earnings, and the previous year's W-2s. If you're self-employed, you must supply bank statements or other proof of income. 
• Tax Returns: At least in the last year, two years are for self-employed borrowers, and three years are for FHA.
• Asset Statements: Bank statements for savings or checking accounts, plus 401(k). Funds from closing, including down payment, must be traceable in an account for at least 90 days. Stashed cash doesn't count; it must be deposited in an account.
• Sales Contract: Once you have signed a sales contract for your dream home, forward it to your lender so that the process can move forward.

Once you have your house picked out, documentation is in order, and you know your financial picture is sound and you can afford all expenses, it’s time to apply for that loan.  Call your bank to schedule an application appointment or apply online. Additional documentation may be required, so be patient and prompt with the process.

Step 7: Start the Underwriting Process

During the underwriting process, the lender will verify all the information you provided, double-check the documents sent, and organize a home appraisal to confirm the loan-to-value ratio on the loan. 

At this stage, you'll need to follow up on all contingencies in the sales contract. If you are getting a home inspection, schedule and complete it in the allotted time frame.

You must also obtain homeowners insurance before closing and provide proof to the lending officer. You must pay for the first year of insurance upfront before closing. So, if you plan on shopping around, do so promptly and don’t wait until the last minute. The application process can be tedious and stressful, but it’s worth it.

Step 8: Close on Your House

Once all contingencies are met, it's time to close on the home. Be prepared to pay the closing costs. These can include appraisal fees, credit check fees, title insurance fees, attorney fees, recording fees, etc. Note that the lender will check the home's appraised and market value, which can be worth double-checking. 

This is the final stretch of the homebuying process. You must sign the sales contract, make any relevant transfers, and close. 

Final Tips on Home Financing

Home loan applications take time but can be the launchpad to life in your new home. Whether you're buying a home for the first time or upgrading to your dream home, carefully prepare your documentation, work to raise your credit score, and research lenders and interest rates. 

Many states also offer first-time homebuyer programs that can offer down payment assistance or help with closing costs. With preparation and research, you could save more on your loan and be a new homeowner in as little as a month. 

Frequently Asked Questions