How to Get a Mortgage in 10 Steps and Land a New Home

Most home buyers will need a mortgage to finance their purchase and close on a new house. Learn how to get a mortgage, navigate the loan approval process, and make it to the closing table.

By Jeff Keleher | Published Jul 26, 2022 11:43 AM

How to Get a Mortgage

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Buying a house is one of the biggest milestones in anyone’s life—it’s certainly one of the most expensive investments someone can make. As such, home buyers will want to approach any real estate purchase with an abundance of preparation. While it may be fun to comb through house listings, check out open houses, and imagine life in a home with a well-manicured lawn, expansive backyard, and modern kitchen, it’s important that prospective buyers focus on getting their financing in order first and foremost.

For many people, the biggest obstacle they face in buying a house is getting a mortgage. Since most people don’t have the means to buy a house outright, home loans make it possible for more people to become homeowners. Securing a mortgage is a critical step in the home-buying journey, but many first-time home buyers may not know how to get a mortgage. The loan approval process can seem daunting, but with the right preparation, it can actually be quite painless. By following these 10 steps, home buyers can get a mortgage loan without running into any unnecessary delays or complications.

Before You Begin…

It’s not uncommon for people to wait until they want to make an offer on a house to start thinking about financing, but it may already be too late if that’s the case. Sellers typically want to know that a buyer has a loan in place before they agree to an offer. That’s especially true in competitive real estate markets where sellers may receive multiple offers and can afford to be very selective about choosing a buyer. Getting a preapproval letter from a mortgage lender before starting the house-hunting process is often recommended so home buyers can make an offer from a position of strength.

Prospective home buyers should also prepare themselves for the thorough financial assessments that the loan preapproval and underwriting process often involves. Getting preapproved for a mortgage will require a credit inquiry, at minimum, but lenders may also request pay stubs, bank statements, or recent tax returns to get a better sense of an applicant’s financial situation and ability to manage debt before providing a preapproval letter.

Finally, the steps outlined below on how to get a mortgage loan are focused on the process as it relates to buying a house. Homeowners who are looking to refinance their existing mortgage can still use many of these steps as a guide, though, since recommendations focusing on lender selection, loan application, and underwriting are also relevant to refinancing a mortgage.

How to Get a Mortgage

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STEP 1: Figure out how much home you can afford.

The very first step home buyers will want to take when preparing to get a mortgage is setting a realistic house budget. One of the reasons it’s so important to get preapproved before looking for a new home is that borrowers can see the loan amount they qualify for—and by extension, how much home they can afford. Having this information in hand helps home buyers narrow their search and set the right expectations for a real estate purchase.

Before going through the preapproval process, borrowers can get a better sense of how much they might qualify for by using home affordability calculators to assess their buying power. These online tools can show what kind of financing is possible, but every home buyer will need to decide for themselves how much they’re comfortable spending on a new home.

There are several costs that go into buying a house, including up-front expenses and recurring expenditures. In most cases, buyers will need to provide a down payment on a new house, which can be a significant amount of money to have on hand. Home buyers will also need to put forward earnest money when making an offer on a house, pay for a home inspection and appraisal, and cover any number of closing costs.

Once the loan is funded, homeowners will need to budget for their monthly mortgage payments, which includes the principal loan amount, interest, property taxes, and homeowners insurance premiums. There may be other monthly housing costs to account for as well, such as private mortgage insurance premiums and homeowners association fees. Before considering how to take out a mortgage, it’s important to look at the costs of homeownership from every angle to create a house budget that accurately reflects all related expenses.

STEP 2: Decide what type of mortgage you want, along with any must-have financing conditions.

Lenders often offer a wide variety of financing options to suit different needs, so it’s no wonder that some people feel overwhelmed before they even begin to broach the subject of how to get mortgage loans. Many people choose to go with a standard 30-year fixed-rate mortgage, which can offer relatively low monthly payments due to the long loan term. Homeowners may also qualify for a 15-year mortgage, but their monthly payments will be significantly higher because the loan will need to be repaid in half the time.

Adjustable rate mortgages (ARM) are potential options to consider as well. These home loans start out with a fixed-rate term that often lasts 5 or 7 years before the interest rate adjusts at regular intervals—6 or 12 months are the most common adjustment periods. Homeowners may also want to explore government-backed loans like VA or FHA loans, which may offer lower interest rates, flexible down-payment requirements, and other appealing features.

In addition to deciding on the type of loan, home buyers may also want to consider what mortgage terms they want. Buyers who have created a strict budget for their monthly housing costs will want to look at how mortgage rates, private mortgage insurance premiums, and other housing costs might impact their mortgage payments.

Other mortgage terms such as contingencies are important to think about at this stage too. For instance, a home buyer who needs to sell their current home first so they can use the proceeds from that sale on a new purchase may be interested in adding a sale contingency to any offer they make. With that contingency in place, they could walk away from the deal if they are unable to find a buyer for their current home. Although such contingencies aren’t always necessary or even recommended, depending on the circumstances, they can be helpful in certain situations but they can make a purchase offer less attractive to a seller in a highly competitive market.

How to Get a Mortgage

Photo: istockphoto.com

STEP 3: Gather any personal or financial documentation that lenders will want to review.

When it comes time for a prospective home buyer to apply or get preapproved for a mortgage, the lender’s underwriting team will conduct a thorough review of the borrower’s finances, credit history, and employment records to assess their ability to repay the loan and manage debt. While prequalification doesn’t involve such a rigorous assessment, lenders will still want to gather some personal and financial information to get a better understanding of the home buyer’s monetary situation and how much money they might qualify for when obtaining a home loan.

To avoid any delays in the preapproval process, it’s usually best to have this information handy ahead of time so lenders can issue a preapproval letter as quickly as possible. In many cases, lenders will ask for some proof of income, which may include pay stubs, bank statements, or the borrower’s most recent tax returns. If a buyer has other sources of income or assets that they plan to use to fund their purchase, lenders will likely want to verify those funds as well. This documentation could include mortgage statements on a currently owned home or brokerage statements verifying stocks or bonds that the buyer owns.

First-time home buyers looking to their parents or relatives for help making a down payment on a new house may need to plan ahead as well. Mortgage lenders are usually fine with this practice, but they will want to confirm the source of those funds. A gift letter written by the person who is helping to pay for the home purchase should suffice. Lenders may not necessarily request a gift letter before granting preapproval, but in case they do, it’s a good idea to have one on hand if the borrower is using funds from a third party.

STEP 4: Shop around for the best financing terms and then choose a lender.

Once home buyers know what they’re looking for in a home loan, it’s time to start shopping around to choose a mortgage lender. Mortgage companies may offer different types of loans and financing terms than their competitors. For instance, not all lenders are approved by the Federal Housing Administration, so those lenders are unable to provide FHA home loans.

When considering how to get a house mortgage, it’s important to keep in mind that every lender has its own threshold for risk, so each one may have distinct loan qualifications and eligibility requirements. Some lenders may be willing to offer larger loan amounts or lower interest rates than other mortgage companies, and borrowers may qualify for a certain type of home loan with one lender but not another.

Many home buyers worry that shopping around for a mortgage—or any kind of loan, for that matter—will negatively impact their credit score because preapproval often requires a credit check. Multiple credit inquiries within a short period of time can affect credit scores, but credit bureaus may also recognize when someone is simply shopping for a mortgage rather than looking to take out multiple loans. In those cases, the impact on a borrower’s credit score could be minimal. Even so, home buyers may want to narrow down their search to lenders that offer the loan terms they’re looking for before applying for preapproval.

STEP 5: Apply for—and receive—a preapproval letter before house-hunting.

Before hiring a real estate agent or scheduling a house showing, home buyers will want to take some preliminary steps to get their financing in order. Having a preapproval letter in hand will strengthen any offer they make because it shows sellers that the buyer is serious and shouldn’t have any issue getting a home loan to fund the purchase. Processing times on preapproval letters can vary by lender, and although some mortgage companies have very quick turnaround times, waiting until the last minute to get a preapproval letter could jeopardize an otherwise competitive offer.

At the same time, home buyers should be aware that preapproval letters will expire after a set period of time—usually 60 to 90 days after they’ve been issued. Timing is very important in this regard; waiting too long to get preapproved could delay an offer, while receiving preapproval too far in advance could mean that the letter is no longer valid by the time the buyer finds a house to purchase.

How to Get a Mortgage

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STEP 6: Place an offer on a house and agree to the contingent terms of purchase with the seller.

When the time comes to put in an offer on a house, home buyers will typically need to work with a real estate agent to create a purchase agreement that outlines the terms of the proposed transaction. These purchase agreements often provide some information about the buyer’s financing arrangement and any contingencies that need to be met before the transaction can proceed. It’s often a good idea to have a real estate attorney look over the purchase agreement before sending it to the seller. Otherwise, a buyer could unwittingly omit crucial terms from the agreement or include sale conditions that fail to serve their best interests.

If required by state law, the transaction will enter the attorney review stage after both parties have agreed to the contingent terms set forth by the purchase agreement. This process usually lasts about a week, but the exact length of time will likely vary by state—some states may not require attorney review at all. During this time, both parties’ attorneys will negotiate the terms of agreement, including any seller concessions or credits given to the buyer. To that end, the buyer will be responsible for scheduling a home inspection to check for any problems that would warrant a credit. In states that do not require attorney review, these negotiations are handled by the real estate agents representing the buyer and seller.

If both sides come to an impasse, they have the option to walk away from the agreement. Depending on the terms of the purchase agreement, buyers may be able to recoup certain costs they’ve paid up to this point, such as earnest money, but they may also need to forfeit that money in certain circumstances. For instance, if a buyer gets cold feet and decides not to go through with the purchase even though there are no issues with the house itself, they may not get their earnest money back.

STEP 7: Submit your mortgage application and start the underwriting process.

Once preliminary terms have been settled and both parties have agreed on what—if any—seller concessions will be made, there’s still another major contingency that needs to be addressed: the mortgage contingency. This contingency gives the buyer a certain amount of time—usually 30 to 60 days—to secure financing for their purchase. Home buyers are not necessarily obligated to use the same lender that provided their preapproval letter, but with such a tight window in which to get a home loan, it may be difficult to start searching for a mortgage company at this stage.

After submitting a mortgage application to their lender for processing, borrowers will be required to provide documentation to verify their income, assets, and employment status. Some of these materials may have already been provided when getting preapproved for a loan, but the lender may ask for more recent pay stubs, bank statements, and other financial documents. The lender may also reach out to the borrower’s employer to verify their employment status.

Before the loan can be conditionally approved, the lender will want to schedule an appraisal of the property to determine its fair market value. Because the home serves as collateral on the mortgage, lenders want to be sure they will be able to recoup any losses in the event of a default. If the home’s appraised value is less than the loan amount, then the lender will likely either reject the application or insist that the buyer renegotiate the terms of the purchase with the seller. Assuming the appraisal confirms that the purchase price accurately reflects the home’s true value, the lender will begin the underwriting process in earnest.

How to Get a Mortgage

Photo: istockphoto.com

STEP 8: Provide any additional documentation required by your lender’s underwriting department.

Closing dates are often scheduled either 30 days or 60 days from the date the contract is signed. That time frame gives underwriters a month or two to review the home buyer’s financial situation, verify their income and assets, and check for any potential red flags that might make them a risky borrower. After the whirlwind of activity that goes into choosing a lender, finding a house, making an offer, and negotiating purchase terms with the seller, there isn’t much for the home buyer to do during the underwriting process. Weeks could go by without any update from their loan officer while underwriters pore over the buyer’s financial records.

Even at this stage in the process, however, there may still be some required documentation that needs to be sent over to the underwriting team. Home buyers should be prepared to produce any additional bank statements, tax forms, or account information that’s requested, along with a homeowners insurance quote to show that they will be able to meet the lender’s hazard insurance requirement.

While underwriting is in full swing, borrowers should avoid doing anything that could negatively impact their finances or credit. Losing a major source of income at this juncture could put the entire mortgage in jeopardy, so maintaining steady employment is critical. Home buyers should also avoid taking on more debt while their mortgage is being processed. Taking out a car loan, opening a new credit card, or applying for a personal loan could all raise red flags with the lender’s underwriters.

STEP 9: Review the Closing Disclosure before going to the closing table.

If the underwriting team is satisfied with a borrower’s loan qualifications, then the mortgage status will change from “conditional approval” to “clear to close.” This means that the lender can move forward with funding the loan so the buyer can close on their new house. As the closing date approaches, the mortgage company will send a Closing Disclosure (CD) to the buyer. This document outlines the terms of the loan, including all costs and fees that need to be paid by the borrower.

Taking some time to review the CD can help home buyers spot any potential concerns with their mortgage agreement before heading to the closing table. Borrowers can check the closing costs, interest rates, and monthly payments outlined in the CD to verify that everything lines up with their expectations and budget. If there are any discrepancies or concerns, it’s best to bring them up as soon as possible rather than wait until the closing date to voice them.

STEP 10: Sign the mortgage agreement, get your loan funded, and close on your new home.

When closing day comes around, the buyer will be able to conduct one last walk-through of the property to check for any issues that may have gone unnoticed during the home inspection. If the buyer spots any problems that require fixing, they can try to negotiate some last-minute concessions from the seller when they meet at the closing table. Both parties and their representatives will usually meet at the selected title company to go over the mortgage paperwork and confirm the terms of purchase—in some cases, the buyer and seller may never meet face-to-face at all, though.

Unless there are any glaring problems with the paperwork or significant issues with the property that need to be resolved, closing on a mortgage should be a fairly straightforward process. The closing agent or buyer’s attorney will walk through each section of the mortgage agreement, explaining the terms of financing and answering any questions from the borrower. Any remaining closing costs will be due at this time as well. Once all paperwork has been signed and all parties are satisfied with the terms and conditions, the lender will fund the loan, finalizing the mortgage and allowing the buyer to complete their home purchase.

Mortgages are essential financial vehicles that help people all over the country become homeowners. Despite the all-important role that financing plays when buying a house, many people don’t know how to get a mortgage. Securing a home loan isn’t as daunting as it may initially seem, though. Understanding the lender’s eligibility requirements and finding a mortgage that fits the buyer’s budget will help home buyers avoid any unnecessary stress. For the most part, the borrower’s responsibility during the mortgage process is largely relegated to supplying any documents needed to verify their finances and abstaining from any financial decisions that could jeopardize their mortgage status.

The best mortgage lenders will be willing to walk through every step along the way and answer any questions borrowers may have to ease their concerns. Lenders may also be able to work with applicants who have bad credit or are otherwise unable to meet conventional loan eligibility requirements, offering alternative financing options to help make the dream of homeownership a reality.