Steps To Applying For A Mortgage: A Guide

Applying for a mortgage can be a complicated and stressful process, but there are several steps you can take to make it easier. Preparation is key, and it's important to familiarise yourself with the process before you begin. This includes getting your finances in order, researching lenders and loan options, and assembling the necessary paperwork. Once you've found a property and put in an offer, the formal mortgage application process begins, and you can expect this to take around 30-60 days to complete.

Check your credit score and report

Checking your credit score and report is an important step in the mortgage application process. Your credit score and report give lenders an idea of how risky it would be to lend to you. The higher your credit score, the less risky you appear. A higher credit score will also help you secure a good interest rate on your mortgage.

You can access your credit score and report from credit rating companies. In the US, the top three credit reporting bureaus are Experian, Equifax, and TransUnion, and you can access free reports from them at AnnualCreditReport.com. Your credit score and report are based on your borrowing history from any lenders and creditors you've worked with, including credit card companies, banks, credit unions, and other financial institutions.

When you apply for a mortgage, the lender will perform a hard credit check, which will cause a small dip in your credit score. You can avoid multiple hard checks by applying to multiple lenders at the same time or in quick succession. Within a 30-day window, multiple credit checks from mortgage lenders are recorded on your credit report as a single inquiry.

Before applying for a mortgage, check your credit report for any errors, such as incorrect contact information or an unreported satisfied loan. If you find any errors, get them corrected as soon as possible by contacting the credit bureau. You should also make sure that your credit report contains correct personal identity information.

You can also take steps to improve your credit score before applying for a mortgage. Make timely payments each month and bring any past-due accounts up to date. Pay down your credit card balances and avoid applying for new credit cards or loans. Additionally, you can become an authorized user on a relative's credit card if they have a good payment history and manage their card responsibly.

Get pre-approval

Getting pre-approval for a mortgage is a critical step in the home-buying process. It gives you a clear idea of how much you can borrow, and it signals to sellers that you are a serious buyer. Here are the steps to get pre-approved:

Step 1: Understand the Pre-Approval Process

Firstly, understand that pre-approval is a more formal process than pre-qualification. It involves a hard inquiry into your credit score and a thorough assessment of your financial situation. This process helps lenders determine if you are creditworthy and how much they are willing to lend you.

Step 2: Get Your Finances in Order

Before applying for pre-approval, it's essential to get your finances in order. This includes reviewing your credit report for any errors or delinquent accounts and resolving any issues. Calculate your debt-to-income ratio (DTI) and ensure it is within an acceptable range (below 36% is preferred). If your DTI is high, consider reducing your debt or increasing your income before applying.

Step 3: Gather Required Documentation

Lenders will require extensive documentation to assess your financial situation. This includes proof of income, such as tax returns, pay stubs, and W-2 forms. You will also need to provide personal information, such as Social Security numbers, current addresses, and employment details. If you have any co-borrowers, their information will also be needed.

Step 4: Contact Multiple Lenders

It is beneficial to contact multiple lenders to compare offers and find the best rates and fees. Each lender may have different requirements and processes, so be prepared to provide additional documentation as needed. Ask questions to understand their pre-approval process and what loan amount you can expect.

Step 5: Complete the Pre-Approval Application

Work with your chosen lender(s) to complete the pre-approval application. This will likely involve answering questions about your income, assets, and the type of home you wish to purchase. You will also need to give the lender permission to perform a credit check.

Step 6: Receive Your Pre-Approval Decision

After submitting your application and required documentation, the lender will assess your financial situation and creditworthiness. If pre-approved, you will receive a pre-approval letter outlining the loan amount they are tentatively willing to lend you. This letter is typically valid for 30 to 90 days and will help you shop for homes within your budget.

House shopping

The first step in getting a mortgage is applying for preapproval. Getting preapproved gives you a good idea of the loan principal you can receive, making it easier to shop for homes within your budget. Once you're preapproved, you can start viewing homes. You can also enlist the help of a real estate agent, who can help you make an offer on a home once you find the right one.

When shopping for a mortgage, it's important to get quotes from several lenders or brokers and compare their rates and fees. Find out all of the costs of the loan, including the APR—the total cost you pay for credit as a yearly rate. Use a Mortgage Shopping Worksheet to keep track of and compare the costs for each loan quote. Remember that applying for preapprovals within a 14-day window can minimize the impact on your credit score.

You might also consider negotiating with lenders or brokers to get better terms. For example, you can ask them to waive or lower fees, agree to a lower rate, or beat another lender's offer. However, be cautious of lenders advertising the lowest rates, as they may not be transparent about the true terms of the deal.

When you receive a loan offer, you will have a valid offer for 10 business days. During this time, you can decide whether to accept the offer or shop around for better rates.

Mortgage application

Applying for a mortgage can be a complicated and stressful process, but there are several steps you can take to make it easier.

First, you should prepare your finances. Lenders will examine your credit score, assets, and debt-to-income ratio to determine your mortgage rate. You can improve your chances of qualifying for a mortgage by reducing your debt, especially credit card debt, and ensuring timely payments. Checking your credit report and applying for pre-approval will also help.

Next, you should research and compare lenders to find the best rates and a lender that suits your financial situation. You can then apply for pre-approval, which involves submitting financial documents and undergoing a credit check. Pre-approval will give you an estimate of how much you can borrow and shows sellers that you are a serious buyer.

Once you have found a property and put in an offer, you can submit your complete mortgage application. The lender will then review your documents, verify your financial information, and initiate other steps like a property appraisal. They will then send you a loan estimate, which outlines the terms of the loan.

The underwriting process is typically the most time-consuming part of the mortgage application. A mortgage underwriter will carefully examine all the information they have about you and the property you wish to buy. They will also order an appraisal of the property to determine if the funds from the sale are enough to cover the mortgage amount.

The final step is closing, which involves signing the contracts and transferring your deposit money. You will receive a Closing Disclosure, outlining the detailed and final costs of your mortgage, and you may have the opportunity to ask any last-minute questions.

Loan processing

The loan processing stage begins after your full loan application has been submitted. This is mostly a waiting period for you, the buyer. During this stage, the Loan Processor compiles your file for underwriting. All necessary credit reports are ordered, along with a title search and tax transcripts. Information on the application, such as bank deposits and payment histories, is verified. If there are any credit issues, such as late payments, collections, and/or judgments, a written explanation is required. Once the processor has put together a complete package with all verifications and documentation, the file is sent to the underwriter.

During or after loan processing, your lender will order an appraisal from a licensed, unbiased appraiser. The appraiser evaluates the home and determines whether the listed home price is fair. An appraisal ensures that lenders aren’t lending more money than the property is worth. If the home’s fair market value meets or exceeds the contract price, the deal can proceed as planned. If it comes back lower, it can delay your home purchase.

Mortgage loan processing can be long and complicated, so it is important to be prepared and organised.

Frequently asked questions