How to Get a Mortgage

By Bill Lyons | Updated on February 5, 2024

Most home buyers need a mortgage to afford their dream homes. Unfortunately, getting a mortgage for the first time can be intimidating. However, once you’ve gone through the process once, you’ll feel more confident in your ability to get a mortgage in the future.

Knowing how to get a mortgage will ensure you have all the information you need to start your home-buying journey, allowing you to take advantage of a speedier mortgage process and close on your loan faster.

Don’t let the mortgage process intimate you. Keep reading to learn how to get a home loan and purchase the home of your dreams.

How to Get a Home Loan: 7 Steps

Knowing how to get a loan for a house will make achieving your dream of homeownership much easier. While there’s no substitute for experience, reading about the mortgage process will ensure you have all the necessary documentation and help you learn what to expect from a lender.

Knowing each step of the process is important because it’ll help you be prepared and know what to do throughout your home-buying journey, which can reduce some of your stress and make the process go much more smoothly. So here are the seven steps for how to get a mortgage loan:

Find a lender

You should always find a lender before shopping for your next home. Most people have at least a few lenders in their area, but you’ll need to determine which one is the right fit for you based on their process and offerings. For instance, you can learn about mortgage loans from banks or private lenders and compare their offerings.

Additionally, if you want a specific type of loan, your options may be more limited. For instance, if you want to apply for a bank statement loan, you’ll need to find a lender specializing in Non-QM loans.

When looking for a lender, you can read reviews online before contacting them to learn more about their mortgage programs. However, we also recommend contacting a lender to discuss your options before choosing a loan type because they have specialists who can help you determine the best type of loan for you based on your unique situation.

Choose a loan type

Finding the best loan type for you will depend on your unique financial situation. For some, getting a conventional loan is the best option because they have a large down payment amount. However, other loans, such as FHA, USDA, and VA loans, may be better suited for other types of borrowers.

You’ll also get to choose between adjustable or fixed-rate mortgages. Fixed-rate mortgages are the most common type because many borrowers prefer an interest rate that won’t change during the life of the loan. However, savvy borrowers may prefer an adjustable-rate mortgage (ARM) that allows them to save more during the first portion of the loan before interest rates fluctuate based on the market.

In addition to the specific loan type and interest rate options, you can choose a mortgage term of usually 15 or 30 years. However, your loan length options may depend on the type of loan. Shorter-term loans may allow for terms of 10 years, which will allow you to pay less in interest over the life of the loan.

Apply for pre-approval

Once you’ve found your lender and determined the type of loan best for you, you can begin the pre-approval process. Mortgage pre-approval is an important step in the mortgage process because it tells you how much your lender is willing to give you. It’s important to note that the pre-approval letter is not a promise. Your lender may not be willing to lend you that amount once you’ve filled out your mortgage loan application.

However, the pre-approval can help you be a more appealing buyer, as most sellers prefer buyers to have a pre-approval letter in hand before making an offer.

To apply for pre-approval, you’ll need to provide information like your income, assets, and credit score, and a lender will be able to determine an amount they may be willing to lend you, along with your interest rate.

Make an offer on a home

Your mortgage pre-approval letter will tell you how much a lender may be willing to lend to you, which can help you narrow your home search. We recommend buyers work with a real estate agent to help you find your dream home. Working with an agent won’t cost you anything since the sellers typically pay their commissions, and it helps to have someone on your side who can help with negotiations and walk you through the entire process of buying a home.

After you find your dream home, the last thing you need to do is put in an offer. You can discuss this with your real estate agent, who will provide information on whether you should meet the asking price, offer a higher amount, or try to save money by offering a lower amount based on comparable home sales in the area.

Your offer can either be accepted or rejected. If your offer is rejected, you can try to negotiate with the seller until they accept your offer. Once your offer is accepted, you can submit a home loan application to obtain funding.

Submit a loan application

Pre-approval doesn’t mean you’ll be approved for a loan or receive the same amount stated on your pre-approval letter. Instead, you must submit a loan application with your most recent information, which includes various types of documentation.

Most lenders allow you to submit a loan application online, but you may also be able to visit their offices or call them on the phone to get additional help if you’re confused about how to get a mortgage online.

Complete the underwriting process

After submitting your application, the lender will begin the underwriting process, verifying all of your information, including income, assets, and credit score, and determining whether you qualify for a loan and how much they’re willing to lend you.

Underwriting can be stressful because you’ll have to wait to find out if you’re approved for the loan. However, this part of the mortgage process is arguably the most important. In most cases, you should have provided your lender with all the information they need to complete the underwriting process, but don’t be surprised if they reach out for more information.

Lenders must do their due diligence to ensure they’re lending to someone who can repay the loan, so they may ask for several types of income verification or have follow-up questions about your unique situation.

In addition to your financial documentation, the lender will review information regarding the property, such as its appraised value, to ensure they’re not lending more than the home is actually worth.

Close on your new home

After the underwriting process is complete, you’ll receive a notification from your lender about whether your loan was approved or denied. If your application is denied, your lender will tell you why, so you can decide whether now is the right time to purchase a home.

If your application is approved, you’ll set a closing date with your lender. At closing, you’ll ask any last-minute questions you have about the loan and pay your down payment and closing costs. At this point, you’ll know how much your closing costs will be.

To prepare for closing, you should purchase homeowners insurance and do a final walkthrough of the home to ensure there haven’t been any major changes to the property.

Documents Needed for a Mortgage

Lenders must do their due diligence when underwriting home loans to ensure borrowers can afford to repay them. After learning how to get a home loan, you’ve likely recognized the fact that you’ll need tons of documentation for the lender’s underwriting process.

They must verify your income, assets, credit score, and other financial information to ensure you can repay your loan. A few documents you’ll need for a mortgage include the following:

Identification

Lenders ask for a photo ID, such as your license or a passport, to verify your identity. Identity theft is fairly common, and anyone can get ahold of your Social Security number, so a photo ID ensures a lender is doing business with the right person.

Pay stubs

Lenders must verify your income to ensure you earn enough to pay your monthly mortgage premium every month. With traditional loans, lenders typically ask for recent pay stubs to determine how much you earn before and after taxes. You’ll also need to provide W-2s.

If you’re not a regular employee and instead an entrepreneur, freelancer, contractor, small business owner, or retiree, you can use bank statement loans, asset-based loans, or other alternative loan types to verify income without having to submit pay stubs or tax returns.

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Tax returns

Lenders typically ask for tax returns regardless of the loan you apply for because they help them accurately determine your financial situation. You can provide the tax returns yourself or fill out a form that allows the lender to request a copy of your tax returns directly from the IRS.

In most cases, lenders prefer to see tax returns from the last two years to ensure your annual income is the same as on your pay stubs and other documentation. They also want to ensure you haven’t had any major financial fluctuations over the last few years.

Asset verification

Lenders will look at your assets to determine their level of risk when lending to you. They typically verify assets, such as bank, retirement, and investment accounts, to ensure you have enough money left over after paying your down payment and closing costs in case of an emergency like job loss.

Lenders will need to review your asset documentation if you’re taking out a Non-QM loan like a bank statement or asset-based mortgage. With these types of loans, your assets are converted to income to determine whether you qualify for a home loan and the total loan amount.

A credit report

You don’t have to provide your lender with a credit report. Instead, they’ll get your permission to view your credit report to look for negative marks like bankruptcies, foreclosure, and massive debts that can impact your loan eligibility.

Lenders typically like to see that an individual pays their debts on time and in full every month. Negative marks on your report reduce your credit score, resulting in less favorable loan terms even if you still qualify.

In some cases, you may be able to write a letter to your lender explaining your bad credit with proof. Ultimately, lenders don’t like to see a pattern of poor debt behavior. However, explaining an extenuating circumstance might be enough to prove to your lender that you’re a trustworthy borrower.

Gift letters

Family and friends can sometimes give borrowers money to help them pay for a home. However, lenders must receive written confirmation that a particular amount is a gift and not a loan from another lender. Providing the source of the money should be fairly easy. You can ask that your family or friend who gifted you the money give you a letter to assure the lender that the amount is a gift and not a loan from someone else.

Your gift letter should include personal information of the person giving the gift, how you’re related to them, the total amount, the date received, and a statement that the gift giver gave the money as a gift and doesn’t expect repayment.

In addition to the gift letter, a lender may contact the gift giver to ask them to provide more proof of the transaction.

Renting history

As part of their due diligence, some lenders may contact your previous landlords to ensure you’re someone who pays their bills on time. Lenders can ask for a certain amount of rent checks or documentation, providing that you’ve paid your rent.

They may also ask landlords to provide this information directly. Rental history is less important than other types of documentation on this list. Some people don’t have rental history, so it’s not necessarily a determining factor for loan approval. However, it can assure lenders that you’re someone who can pay their housing costs every month on time.

Tips for a Smoother Mortgage Process

Most people first learning how to get a loan for a house don’t realize how complicated the process can be. For instance, your income is crucial in determining loan approval, but it’s not the only factor at play. You can have a high income, but you may not be approved for a loan if you have a high amount of debt. The mortgage process can be time-consuming and stressful, but there are several ways you can increase your chances of getting approved, such as:

Build up your savings

Building up your savings will help you put more down on a home. While you don’t need a 20% down payment for every type of home loan, having a larger down payment means having a smaller loan.

For instance, if you want to purchase a home for $250,000, you may be able to put down as little as $25,000, so you’ll need to borrow $225,000. However, if you make a down payment of $50,000, you’ll only need to borrow $200,000.

What does this mean? Ultimately, the more you put down, the lower your loan amount will be, so the less you’ll pay over the life of the loan, effectively reducing your monthly payments.

A higher down payment also reduces your interest rate and ensures you avoid paying private mortgage insurance (PMI), so you can save more over the life of the loan.

In addition to the down payment, you should save enough for closing costs, typically 3-6% of the total loan amount. Closing costs and your down payment are due at closing, so you’ll need to ensure you have enough saved after the down payment to pay for closing.

It’s also a good idea to have cash reserves. While lenders do their due diligence to ensure you can afford to repay your loan, extenuating circumstances can impact your ability to pay. Job loss, accidents, and unexpected expenses may force you to choose between one bill or another. However, reserves can help by ensuring you have at least three to six months’ worth of mortgage payments in your savings account.

Maximize your credit score

A high credit score can help reduce the total cost of your loan by lowering your interest rate and helping you get more favorable terms. Someone with a high credit score is more likely to repay their mortgage than someone who doesn’t have a history of paying their debts on time.

The higher your credit score, the more trustworthy a borrower you are, and lenders will give you better rates and lower fees based on this number. However, you don’t need a high credit score to get approved for a mortgage. Instead, many lenders allow you to secure a mortgage with a fair score of around 620 to 670.

Nevertheless, a high credit score can help you save money, reducing your monthly mortgage payments and total interest cost. Therefore, before applying for a loan, it’s a good idea to pull your credit history and find ways to increase your credit score. A few ways to increase your credit score quickly include:

• Paying your bills on time
• Paying off debt as much as possible
• Not closing credit cards

Choose the right loan

There are so many loan options available that choosing the right one for you can seem challenging. However, with a mortgage lender like Griffin Funding, you never have to worry about choosing the right one.

You should usually consider your financial situation to find the best loan option. For instance, if you’re a contractor or self-employed, you may have an easier time qualifying for a Non-QM loan than a conventional loan. However, the right choice will depend on many factors, such as your down payment, savings, income, debts, etc.

If you’re unsure of the right loan type, we recommend contacting us to learn more about our options. Once we learn more about you and your unique situation, we can provide you with more information about the best mortgage loan options for you.

Pay off existing debts

Paying off existing debts before applying for a loan can reduce your debt-to-income (DTI) ratio. Your DTI compares your monthly debts to your monthly income, giving lenders a percentage of how much of your gross income goes towards paying your debts and how much you’ll have left over for a mortgage payment. The lower your DTI, the better your chances of getting mortgage approval.

Most lenders look for a DTI of around 36%, which indicates that 36% of your gross income goes towards debts like credit card bills, other mortgage payments, student loans, and auto loans.

You can calculate your DTI by adding your minimum monthly payments from bills like auto, student, credit card, and personal loans. Some expenses aren’t included in this calculation, such as electric and internet bills, savings account contributions, and miscellaneous expenses.

Next, divide your monthly payments by your gross monthly income. Your gross monthly income is your pre-tax income, which you can find on your pay stub or by dividing your salary by 12 — the number of months in a year. After that, you’ll convert the result to a percentage to give you your DTI.

Different types of loans have different DTI requirements, but we recommend keeping your DTI lower than 43% for most loans.

Looking for more tips for buying a home? Read our first-time home buyer checklist.

Gain a Better Understanding of How to Get a Mortgage Loan

Getting a mortgage loan may seem intimidating, but the process is fairly straightforward. You can streamline your mortgage approval by ensuring you have all the necessary documentation and knowing what to expect throughout each step of the process.

Find out if now is the right time to purchase a home and learn more about your options by contacting Griffin Funding today or starting your mortgage application online.

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.