Home Buying a Home The 5-Step Guide to Getting a Mortgage

The 5-Step Guide to Getting a Mortgage

by Angela Brown
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When thinking about buying a home, many people jump right into the home search. However, scouring Zillow for your dream home isn’t necessarily the best first step in the home buying process. If you think you’re ready to buy, it’s a great time to do a bit of research and make sure you understand the ins and outs of securing a mortgage. 

Purchasing a house is a considerable investment (the largest some people will ever make), so before you start shopping for your dream home, you’ll want to make sure you’re prepared to finance it. 

This guide will walk you through the process of getting a mortgage from beginning to end. 

Here are the Steps to Getting a Mortgage

The mortgage process is a series of tasks you’ll need to complete before you can turn the key to your new home.  Keep reading to learn what to expect when making the leap into homeownership. 

1. Get Pre-approved to See How Much House You Can Afford

The most important thing you can do when thinking about buying a house is to make sure you know your budget. By being proactive and setting realistic expectations about how much you can comfortably afford to put toward a mortgage each month, you can avoid the heartbreak and wasted time of falling in love with a home you can’t afford. 

An online mortgage calculator can be a good place to start for estimating how much house you can afford. It provides a rough estimate of your monthly mortgage payment based on the purchase price, credit score, and down payment figures you enter.

In determining a realistic house budget, you’ll want to go beyond your mortgage payment to account for additional homeownership expenses like taxes, utilities, insurance, maintenance, and HOA fees. 

Also keep in mind that your annual percentage rate (APR), which is the actual rate you’ll be paying, will likely be a little higher than the basic interest rate quoted. Your APR factors in lender fees, closing costs, and private mortgage insurance that get bundled on top of your interest rate.

Pre-approval vs. Pre-qualification

Before you even begin looking at houses, you’ll want to secure a pre-approval letter from at least one lender. During your research, you’ll likely have heard the terms “pre-qualification” and “pre-approval.” While they are often used interchangeably, there are a couple of key distinctions between the two. 


Often viewed as a first step in the borrowing process, a pre-qualification provides a rough estimate of your borrowing power based on the information you provide to a prospective lender. 

During prequalification, which is usually completed via an online form, a lender will check your credit score and ask you to fill in information about your income, assets, and debts. They will then run your credit score (which won’t affect your credit) to give you an estimate of how much money you could potentially borrow. 

While a pre-qualification can give you a vague idea of what type of home you could afford, it doesn’t hold much water as far as providing evidence of your ability to get financing. Since loan pre-qualification is based solely on self-reported information and not subject to further scrutiny from a lender, the number it provides will be less precise than what you would get with a pre-approval.


Compared to pre-qualification, mortgage pre-approval involves a more rigorous review and verification of your finances by a qualified lending institution. 

During pre-approval, your lender will ask for financial documents such as pay stubs, tax returns, and bank statements. The lender will also pull your credit report from the three main credit bureaus to look at your credit score and credit history. Based on your qualifications as a borrower, they will provide you with a pre-approval letter outlining the pre-approved loan amount, projected interest rate, and other terms such as down payment requirements and lending fees. 

While not an official lending agreement, pre-approval is about as far as you can go with a lender without identifying the specific home you intend to buy. Because pre-approval requires a greater degree of financial scrutiny than pre-qualification, it’s also a stronger indicator of your ability to finance a home, which can give you an edge over other buyers in a multiple offer situation. 

What you need to apply for pre-approval:

When you apply for a preapproval, the lender will consider the following:

  • Income
  • Credit history and credit score
  • Employment history
  • Debt-to-income ratio
  • Assets and liabilities 

To help them make this determination quickly, you should have the following documents ready to go:

  • Tax returns from the last two years
  • Pay stubs from the previous six months
  • Other income statements (self-employment etc.)
  • Gift letters (if anyone is providing funds towards your down payment)
  • Bank statements
  • Employer information
  • Personal identification information
  • Investment account information

As a rule of thumb, you should obtain pre-approval from at least three lenders so that you have options once you’re ready to purchase. You can use your pre-approval letters to make your offer more attractive when you find a home you love.

FAQ: Will pre-approval impact my credit score?

Before pre-approving you for a loan, a lender will submit a credit inquiry to one or more of the three major credit bureaus (Experian, TransUnion or Equifax), which will go on your credit report as a hard credit pull. Because a hard credit pull is a signal that you are about to take on new debt, you may see your credit score drop by a few points. However, the dip in credit score is generally short-lived, especially if you have decent credit to begin with. 

The even better news is, that once you apply for a loan, you have a 30-45 day window to keep applying and comparing rates from other lenders with no further hits to your credit score. Credit reporting companies understand that consumers want to get the best rate on your mortgage, so if you seek pre-approval from multiple lenders in a short span, the inquiries will all be counted as one. 

2. Select the Right Mortgage

As a consumer, you have multiple options when it comes to funding the purchase of your home. In addition to the multitude of lenders vying for your business, there are several different types of mortgage loans to choose from. Knowing the benefits and drawbacks of each loan type will help you choose the best loan for your financial situation. 

Types of Mortgage Loans

Here are the most common types of loans you’ll encounter when trying to purchase a home: 

Conventional: A conventional loan is one that is backed by a private lender, rather than the government. To qualify for a conventional loan, borrowers generally need to have a good credit score, money for a down payment, and a steady income. Conventional loans often have the best interest rates, but they also have stricter credit score requirements. 

FHA: FHA loans are backed by the federal government, meaning lenders have the assurance that they’ll get paid even if you default on your loan. Interest rates on an FHA loan are often slightly higher than a conventional loan. However, FHA loans offer lower down payment requirements and are a good option for buyers with a less than stellar credit history. 

VA: Active or retired members of the United States military and their spouses are eligible to apply for a VA loan. While accessed through a private lender, a portion of the VA loan is backed by the Department of Veterans Affairs. This allows lenders to offer VA loans with more favorable terms, including no down payment, low interest rates and closing costs, and a waiver on private mortgage insurance. If you are interested in applying for a VA loan, be sure to check with your lender to ensure that they offer this type of loan, as not all lending institutions do. 

USDA:  USDA loans are used to help individuals with low-to-moderate income to buy safe, decent housing in a rural area to use as a primary residence. These loans are available with as little as 0% down payment to those who qualify based on income and are guaranteed by the USDA.  

Jumbo: If you’re taking out a mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac, you may need to consider a Jumbo loan. Jumbo loans can help borrowers purchase more expensive properties but, because they are riskier to lenders, generally come with higher borrowing restrictions. To qualify, you should have great credit and at least 20% for a downpayment. 

Compare rates and lenders

When applying for a loan, it pays to shop around for the right lender. Even a slightly higher interest rate could add up to thousands in additional interest over the course of your loan. That’s money down the drain that could otherwise be used to pay to cover monthly expenses or put toward savings. 

As you’re talking to different lenders, be sure to compare the details of each loan estimate side by side, including the associated fees and closing costs. If you prefer one lender over another, but they don’t offer the best rate, you can also ask if they would be willing to match another quote you’ve been given. Many lenders will try to beat a more competitive interest rate in an effort to earn your business.

Explore Down Payment Options

While you’re researching different mortgage options, down payment will be a major consideration for the type of loan you qualify for and the terms you receive from a lender. In general, a higher down payment will result in a better interest rate. Depending on the type of loan you choose, meeting a minimum down payment may help you avoid paying for private mortgage insurance (PMI), which is required by certain lenders to protect them against risk if you should default on your monthly payment.

Here is how much of a down payment you’ll need to have on hand for each loan type in order to avoid PMI:

  • Conventional: 20% to avoid private mortgage insurance
  • FHA:  3.5% 
  • USDA:  as low as $0
  • VA: No down payment required
  • Jumbo: 10-20% depending on your lender

If you’re unable to save for a significant downpayment, you may be able to take advantage of a down payment assistance (DPA) program. From first-time homeowner grants to matched savings programs, there are multiple programs available to help buyers with limited savings purchase a quality home. DPA assistance varies by city and state, with some programs requiring a second mortgage to cover the cost of the down payment. Make sure to talk to your lender to find out the types of assistance programs they work with and what they could mean if you want to move or refinance in the next few years. 

Note: Even if you aren’t required to provide a down payment, you will have closing costs like appraisal and underwriting fees. Closing costs can be up to 5% of the total purchase price ($9,000 on a $300,000 home). However, many of these, including the commissions paid out to agents, can be negotiated with either your lender or the seller. Here are some strategies to help lower your closing costs.

3. The Fun Stuff: Choosing a Home and Making an Offer

Once you’ve gotten your pre-approval letter and you have a budget in place, now it’s time to tour homes and find your dream home. 

Finding a real estate agent

When shopping for your new home, you want the right representation. A good agent understands the local market and can help ensure you don’t pay too much for a home. In a competitive market, an experienced agent can give you insight into making your offer more attractive. They’ll also provide honest feedback about listing prices. 

Don’t be afraid to interview multiple agents. You want to work with someone focused on helping you find a good home for your needs, not an agent focused on selling any property. Real estate agents can be helpful resources for mortgage brokers, down payment assistance programs, and neighborhood information. 

Choose an agent you feel comfortable talking to and an agent that’s transparent about fees and when they’re available.

Navigating a competitive housing market

Shopping for a home can be a lot of fun, but it can also be frustrating if you’re looking in a popular community. Recent trends show that the average home on the market has multiple offers, and some are receiving all-cash offers. If, like most people, you don’t have a few extra hundred thousand dollars lying around, you could find yourself losing bids on homes you love. 

An agent can be a helpful resource in a competitive seller’s market. They can steer you towards communities with less competition or help you make your offer more attractive without sabotaging your efforts to get the best deal possible. 

Know what you need versus what you want

Your first home won’t be perfect. You’ll likely need to make sacrifices to find a home that works for your family and your budget. Before you start shopping, make a list of things you absolutely must have, a list of things you want, and some things that would be nice. Focus on the things you cannot live without. These typically include the number of bedrooms and bathrooms, location, and property type. 

Once you know what you must have, it’ll be easier to make decisions that might not fit with what you want but fit within your budget and needs. 

Make an offer

Once you’ve decided on the home you want to purchase, it’s time to make an offer. Your agent will go over the details and provide an analysis of the home’s fair market value in relation to the asking price. When you determine the price you’re prepared to pay for the home, you’ll need to sign a document outlining your offer to the seller (including any contingencies you’d like added), which they can either accept, reject, or counter. 

If your offer is accepted, you’ll sign a formal contract with the seller and put down earnest money as a deposit that will apply to your down payment at closing. You’ll then enter into escrow, where your deposit will be held by a neutral third party until all of the contract requirements are met. Check out this article on the escrow process to learn more about what happens when you make an offer on a home. 

4. Apply for Your Loan

Once you enter into escrow, it’s time to move forward with financing. Since you already received pre-approval, you shouldn’t have too much to do. However, your lender may request additional information, so you should keep your personal information and financial documents in an easy-to-access location. 

Documents that you’ll need to have on hand when you apply for your loan include:

Tax returns: Have at least the last two years ready. If most of your income comes from self-employment, you may need additional documentation like income statements, sales receipts, or invoices. 

Pay stubs: Lenders will want all pay stubs for at least the past six months. 

Other income statements: If you have any self-employment income, income from investments, rental property income, etc., you should have records on hand to show how much you make.

Gift letters: If friends or family members provide cash for your down payment of home purchase, you’ll need a letter from them detailing how much they provided and for what purpose. 

Bank statements: Collect copies of your bank statements from the last three months. You’ll want documentation from all checking and savings accounts.

Employer information: The lender will ask for your employer’s name, address, and phone number. They’ll also want your position and job description, manager’s name, and salary.

Personal identification information: Your lender will need your social security number, a copy of your driver’s license or state ID, address, and phone number.

Investment account information: Don’t forget to collect updated information about your investment accounts as the lender will use this information when determining if you qualify for a loan. 

Finally, your lender may also require you to provide proof of homeowner’s insurance. The cost is often included in your monthly mortgage payment. Be sure to shop around to find the right policy to fit your needs. 

Once your loan application has been submitted, a lender has three days to provide you with a loan estimate offering a detailed breakdown of the fees, rates, and closing costs associated with your mortgage. This is a great tool to help you shop for the right mortgage lender. Brokers and loan officers may be more willing to negotiate based on the quotes you receive from other lending institutions. 

Behind the Scenes: Processing and Underwriting 

Once your lender has all of your information, your loan application will move to underwriting. Underwriters are there to ensure that the lender doesn’t give loans to risky buyers. When determining risk, an underwriter will look at your credit history, credit report, and other financials. They’ll also get an appraisal on the home to ensure that the bank isn’t paying more for a property than its worth. 

Lenders want to know that you can afford to make your payments and that you have a history of making your payments on time. In order to make a decision on lending, underwriters will look at the last 12 months of your credit history. They will also be able to see any bankruptcies or collections items going back as far as 10 years. 

The approval process takes around 30-days, on average, to complete. Some factors (liens on the property, missing financial information, or unexpected appraisal results) could delay approval by weeks or even months. 

In certain cases, you may receive a notification that your loan has been “approved with conditions.” This means your application mostly passes inspection. However, they may need more information from you in order to make a final determination on lending. This could be as simple as explaining a recent deposit or withdrawal from your bank account. Requests for more information are fairly common as underwriters review your financial statements and credit history in detail.

FAQ: What are the reasons an underwriter would deny a loan?

It’s important to note that your loan can be denied even if you were pre-approved. 

For example, a lender might reject your loan application if they see a significant change in your credit score or you take on additional debt (such as a new car loan or hefty credit card spending) after applying for a mortgage. A lender may also deny a loan if your employment status changes or if the home appraisal comes back at less than your offer price. 

In order to give your mortgage application the best chance of approval, some mistakes you’ll want to avoid once your loan heads to underwriting include:

  • Charging any money on your credit cards
  • Taking out any new loans
  • Applying for new credit cards 
  • Changing jobs 
  • Closing active credit accounts
  • Bouncing checks or overdrawing your bank account
  • Changing banks
  • Making large, irregular deposits 
  • Ignoring calls from your lender

Once your loan is approved, your lender will provide a final loan disclosure outlining the exact details of your loan, including the total amount due at closing. Be sure to examine this closely and ask about any unexplained fees or discrepancies with the loan estimate. 

5. Final Approval and Closing

Once you receive your final loan approval, it’s time to schedule the closing meeting. 

Some states require a lawyer to oversee a real estate closing. The states that require an attorney include Alabama, Connecticut, Delaware, District of Columbia, Florida, Georgia, Kansas, Kentucky, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, North Dakota, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and West Virginia. 

Regardless of whether a lawyer is present, you’ll need to be prepared to sign a lot of paperwork, including:

  • A settlement statement that lists the costs related to the home sale
  • A mortgage note promising that you will repay the home loan
  • A mortgage or deed of trust to secure the mortgage note

You’ll also need to bring a photo ID, copy of your loan disclosure, proof of funds, any paperwork requested by the title company or loan officer, and a cashier’s check to cover your down payment and other closing costs. This will be made payable to the title company.

At the closing meeting, the seller will all sign paperwork that transfers the property to your ownership. After the meeting ends, and your agent submits the title paperwork to the county, you’ll officially be the new owner of the home!

Whew! That’s a lot of information. But, with a clearer understanding of how the mortgage process works, you can go forward with confidence that you’re ready to take the next step. 

Ready to find your next home? 

REX can help you with every aspect of your real estate process, whether you’re buying, selling, or both. 

Because REX’s approach brings brokerage, mortgage, title & escrow, insurance, and home services together under one roof, we are able to offer home buyers better service, a simplified process, and significant savings compared to traditional real estate brokerages. Our aim is to ensure that you feel secure and included every step of the way.

To get started, give us a call at 855-205-0599.

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