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How to Get a Mortgage in 8 Easy Steps

Key Learnings
  • The mortgage process can be intimidating, but having a solid understanding of how the mortgage process works can expedite your process
  • Prepared homebuyers should know their financial background, which includes income, credit, and debt
  • Locating documents ahead of time can make the application process smoother
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The mortgage process doesn’t have to be intimidating. You can avoid feeling overwhelmed with the right preparation. It will be a lot easier to navigate if you understand the mortgage timeline and what to expect next.

To help as you transition from homebuyer to homeowner, here are eight steps you can expect during the mortgage application process.

Step 1: Take a Look at Your Finances

Prior to offering you a mortgage loan, any lender you work with will examine your finances to ensure that you can comfortably afford to pay back what you borrow. Lenders will also want to examine your finances to get a good idea of which mortgage product is right for you. This typically includes an analysis of your income, credit and assets. If you take an inventory of your finances before you apply for a loan, you can identify any areas that might need improvement and maximize your chances of approval. This analysis should include:

Income

Before you apply for a mortgage, take a close look at your income and debts to determine how much you can afford to spend on a home. As a general rule, your housing costs should not exceed 28% of your gross income, and you should allocate no more than 36% toward monthly debt payments. This is known as the 28/36 rule.

Understanding how much of a mortgage payment your income allows for is an important step in the homebuying process. Knowing how much of a housing budget you have before you start shopping can prevent the heartbreak of falling in love with a home out of your price range.

Credit

It’s a good idea to have a ballpark idea of where your credit score is before applying for a home loan. Your credit score can affect what loan options may be available to you. Typically, the better your credit score is, the better the mortgage terms are. If your credit score is lower than average, you could be seen as riskier, and your loan options might be limited. On the other hand, if your credit score is great, you’ll have more mortgage options available to you — and probably lower interest rates.

Assets

You should also look closely at your liquid assets to determine your realistic buying power. This includes the money in your bank accounts, retirement accounts and even investments that can quickly be converted into cash. If your assets' values don't cover at least three months’ worth of bills, including your new mortgage payment, the home you’re considering may be a stretch.

Step 2: Get Your Documents Ready

You will need to provide your lender with a fair bit of paperwork during the loan process. For a faster experience, consider having the following on hand when applying.

Proof of Income

Most lenders will require you to provide at least two months’ worth of pay stubs as proof of income, though some will require more. You may also be asked to provide your W-2s and tax returns from previous years. This helps the lender get a full idea of your financial picture.

If you’re self-employed or have other sources of income, you may need to provide 1099 forms, full tax returns, direct deposit statements or other documents.

Credit Documentation

Your lender will pull your credit report as part of the loan process. If you want to be proactive, you can request a copy of your credit report from each of the three bureaus. This gives you the opportunity to check for errors and file disputes in advance. If you have any missed payments or other credit missteps, your lender may ask you for an explanation — as well as the steps you are taking to mitigate the chances of them occurring in the future.

Proof of Assets and Liabilities

Your lender will want to look at your bank statements and other asset documents, like investments or even life insurance policies. . You may also need to provide documents related to your liabilities, like current mortgage paperwork or your credit card statements.

Step 3: Shop for a Lender

The rates, fees and loan options can vary by lender, so it's a good idea to compare mortgage lenders to see which one is right for you.

Be aware that lenders may need to pull your credit during this process, which could impact your credit score. You can avoid having multiple pulls count against your credit by shopping different lenders around the same time. Multiple credit pulls within the same window count as a single credit inquiry, so don’t be afraid to apply with multiple lenders! Depending on the credit scoring model used, you will have between 14-45 days to shop around.

Step 4: Apply for Preapproval

After you’ve narrowed down your lenders, you can apply for a preapproval, which requires your lender to take a comprehensive look at your finances.

If you are preapproved, your lender will issue a preapproval letter detailing the maximum amount you can borrow. You can also ask for more information on the interest rates you qualify for and other costs that could be associated with your loan.

Step 5: Start Your House Hunt

With the preapproval letter in hand, you can begin shopping for a home. Your preapproval letter is important because it lets both agents and sellers know that you are a qualified and serious buyer.

Step 6: Make Your Offer

When you find the perfect home, it’s critical to submit the strongest offer possible, based on your location and market. If the market is competitive in your area, you may want to offer your highest purchase price upfront to avoid losing the home to other interested buyers. But don’t worry; if you’re using a real estate agent, they’ll be more than happy to help you craft a solid offer.

You can also talk to your agent about other contingencies you can include, like a quick close or higher amounts of earnest money. In highly competitive markets, offering a higher earnest deposit or a fast closing may set you apart from other buyers.

Step 7: Verify Details

After you have an accepted offer in hand, your loan will go through the underwriting process. During this process, your lender’s team will work to process your application and verify your financial information.

It’s normal for additional documents or paperwork to be requested during the underwriting process, so be sure to stay in touch with your lender and gather the additional information as needed. By answering promptly and thoroughly, you can expedite the underwriting process and cut down on the chances of your loan falling through.

Step 8: Closing

Your closing is the last step in the mortgage process. Before your closing, you will be given a packet with your loan documents known as the Closing Disclosure or CD for short. Review the documents in this packet carefully. It will spell out the terms of your loan and outline the payments and other costs you are responsible for.

At closing, you will sign all of your final loan documentation and pay any outstanding balances for your down payment, closing costs or lender fees. Once these papers are signed and the money is paid, you can take possession of your new home.

One Final Thought

The mortgage process can be intimidating for new and repeat buyers alike, but preparing beforehand can definitely pay off. Take the time to gather your documents, do your research, and determine what loans and lenders are right for you. By putting in the work before you apply, you maximize your chances of a smooth process for both you and your lender.

Written by:
Justin Buford
Loan Coordinator

Justin came to Paddio with a decade of experience in the mortgage and lending industry, developing a vast knowledge of multiple loan types, including but not limited to Conventional and FHA loans.

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