How to Get a Mortgage

Mortgage rates have more than doubled since the lows during the COVID-19 pandemic. But if you're financially prepared to buy a home, even with a higher interest rate, you can still take out a mortgage loan and become a homeowner. This guide will help you through the process.

Steps to getting a mortgage

If you're interested in figuring out how to get a mortgage, follow these eight steps.

1. Become a well-qualified borrower

Any mortgage lender providing home loans wants to know you're financially prepared to repay your loan. Lenders look at a few key credentials when deciding whether to provide a mortgage. You need to know what these are when determining how to get a mortgage.

Qualifying criteria for a mortgage include:

• Your credit score: Generally, you'll need a minimum credit score of around 620 to 680 (depending on the lender). You may be able to qualify for some government-backed loans (such as FHA mortgages) with a score as low as 500. Still, you should take steps to improve your credit before applying for a mortgage.
• Your debt-to-income ratio: This is the ratio of your debt relative to your income. Most lenders prefer that your debt payments don't exceed 36% (about one-third) of your income. There are exceptions, however, especially for certain government-backed loans.
• Your work history: Lenders prefer you have stable employment. You should be able to provide proof of steady earnings over at least two years and avoid job changes before applying for a loan. If you're self-employed, you may need to provide extra documentation. Check our guide to getting a mortgage while self-employed for more information.

By taking these steps, you can maximize your chances of being approved when applying for a mortgage loan.

2. Research your loan options

Mortgage loans can be broadly divided into a few categories. When deciding how to get a mortgage, you'll first need to choose between:

• Conventional loans: More lenders offer these, and they often come with fewer fees, but they can be harder to qualify for. These don't have a government guarantee backing them.
• Government-backed loans: It's easier to qualify for these loans, but you may owe upfront funding fees. You might also have to meet certain criteria such as having a history of military service or buying a lower-priced home in a rural area. These loans are insured, or guaranteed, by government agencies such as the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) or U.S. Department of Agriculture (USDA).

Well-qualified buyers may do better with a conventional loan while a government-backed loan may be a better choice if your credit score or income is lower. Before making a final decision, compare FHA mortgage rates, VA loan rates, and USDA rates with rates on conventional loans.

You'll also need to decide what loan term is right for you when figuring out how to get a mortgage. The most common are 15-year, 20-year, and 30-year loans. Shorter loan repayment terms come with higher monthly payments but lower total interest costs.

Finally, you'll need to decide if you want a fixed-rate or adjustable-rate mortgage. Fixed-rate loans provide the predictability of a guaranteed interest rate and monthly payment. Adjustable-rate loans are also available but are higher risk, since your rate and payment could change.

3. Decide how much to borrow

You'll need to determine how much you can afford to spend, or want to spend, on a home when you are deciding how to get a mortgage.

To do this, evaluate the price of properties in your area, as well as your financial goals. Ideally, aim to keep total spending on housing costs below 30% of your income. You may decide to borrow less if you'd prefer to devote more money to other goals.

4. Save up a down payment

Traditionally, determining how to get a mortgage would involve figuring out how to save up 20% of your home's value to make the required down payment. This is no longer the case. In fact, as our first-time home buyers guide reveals, there are a huge number of options for loans requiring a minimal down payment.

In general, however, securing a mortgage with little or no money down can be very high risk. You could end up owing more than your home is worth, which makes it difficult to refinance or sell. You'll also pay higher costs, including private mortgage insurance (PMI) or upfront fees.

5. Shop around for rate quotes

Mortgage rates and terms vary substantially among lenders. Compare rates from at least three home loan providers to get the best possible rate when determining how to get a mortgage.

When comparing rates, make certain lenders don't do a hard credit inquiry, as too many could reduce your credit score and make securing your mortgage more expensive. Most lenders provide rate quotes quickly online with a soft credit check only, making it easier to comparison shop.

6. Get pre-approved for a home loan

When you've compared rates and terms, you can find a lender offering a competitive loan. Apply to get pre-approved for a mortgage with that loan provider.

Mortgage pre-approval involves submitting financial documentation and, generally, undergoing a hard credit check (this lowers your credit score slightly). Your lender will determine exactly what loan you qualify for, and at what rate, and you'll be guaranteed that loan as long as no problems arise. You'll also be given a pre-approval letter to provide when you make an offer on a home.

7. Make an offer on a home

You'll need to be approved for a mortgage on a particular property. If you can't pay the loan, the lender will repossess the home and sell it. So the lender wants to make sure the home is worth enough to cover the costs of the loan if you can't pay it.

Here's how to make an offer:

1. Find a home you're interested in purchasing: Consider location, school district, zoning rules, and homeowners association requirements when making your decision.
2. Decide how much you're willing to pay: Whether you offer the asking price or another amount will depend on many factors, including whether it is a seller's or buyer's market and if the property is priced fairly.
3. Submit a formal written offer that includes appropriate contingencies to protect you: These typically include a clause allowing you to walk away from the purchase without losing your deposit if the home doesn't appraise for enough, if you don't secure financing, or if an inspection reveals serious problems

If you're working with a real estate agent, they should help you with each step of this process. You'll also want to include your pre-approval letter when you submit an offer, so the seller knows you are a serious buyer.

8. Apply for final approval of your loan

Once your offer is approved, complete the final steps in securing your loan. The lender that pre-approved you will evaluate your financial documentation to ensure nothing has changed between pre-approval and closing. Your lender will also require a home appraisal to ensure you aren't borrowing more than the home is worth.

If your home has enough value to serve as collateral for your loan and you remain a well-qualified borrower, your loan will be approved and you'll be able to secure your loan.

Mortgage loan checklist

Follow these essential steps when getting a mortgage loan and buying a home:

1. Become a well-qualified borrower by repaying debt, staying at your job for several years, and earning a good credit score.
2. Research your loan options, including conventional or government-backed loans; fixed- or adjustable-rate mortgages; and 15-year, 20-year, or 30-year loans.
3. Decide how much to borrow based on your personal financial goals.
4. Save up a down payment of ideally 20%, although there are options to put down less.
5. Shop around for rate quotes to compare rates and terms from at least three lenders.
6. Get pre-approved for a loan, which involves providing financial credentials to your chosen lender.
7. Make an offer on a home, which you'll use the mortgage loan to buy.
8. Apply for final approval, which includes an appraisal of the home and an additional review of your financial details to make sure nothing has changed.

Still have questions?

Here are some other questions we've answered:

• How to Choose a Mortgage Lender
• How to Get Pre-Approved for a Mortgage
• What Credit Score Do I Need for a Mortgage?