Step By Step Guide for Applying for a Mortgage

Applying for your first mortgage is an exciting life milestone. But the excitement can quickly turn to stress if you don’t know what you’re doing. An easy step-by-step guide will help you understand the mortgage application process. Here’s what to do to finance your home purchase.

home loan interview — Interviewing mortgage lenders for a first-time mortgage

Research Types of Loans

When embarking on the home-buying journey, understanding the types of mortgage loans available is crucial for first-time homebuyers. There are two primary types of mortgage loans to consider: fixed-rate and adjustable-rate mortgages (ARMs). A fixed-rate mortgage offers stability with a consistent interest rate and monthly payment over the loan’s life, making it easier to budget long-term. This type of loan is ideal for those who plan to stay in their home for many years and prefer predictability. On the other hand, adjustable-rate mortgages start with a lower interest rate, but they adjust periodically based on market conditions. This can result in lower initial payments, but there’s potential for fluctuation over time. ARMs might suit buyers who plan to sell or refinance before the adjustable period kicks in.

Loans can also have add-ons depending on your situation. For instance, if you put down less than 20% down payment, the lender may require private mortgage insurance (PMI). Some loans will wrap this into the monthly payment; others will drop the fee after you reach 80% of the loan-to-value ratio. Some government-backed loans charge a mortgage insurance premium (MIP) or a funding fee.

Exploring all the options will help you determine which loan program aligns best with your financial situation and homeownership goals.

Choose Your Lender

Interview several mortgage lenders about the loan products they have. Each bank can have different loan programs that they sell and originate. Plus, they may have different flexibility on their loan terms or give different interest rates. Shopping around the different mortgage companies could save you thousands in the long run. So, interview and narrow down your lender and loan choices early in the mortgage loan process. The interview process can also help you narrow down an affordable price range.

Gather Your Paperwork

Before applying for a loan, it’s important to gather all the necessary paperwork. This includes bank statements, tax records, proof of debts and assets, and any income changes. You want statements on any outstanding debts like student loans or car payments. Watch your bank deposits; any unusually large amounts that are out of the norm may trigger a flag during the underwriting process. Having these documents ready can streamline the application process.

You may want to pull your credit report during this time. Each lender and mortgage option will have different credit score requirements. Borrowers with credit scores in the “good” and “excellent” range can anticipate the best possible loan terms and interest rates. If not, you can work to improve your credit score by lowering your monthly debt payments or changing your credit utilization.

Submit Your Application

When you’re ready to submit a purchase agreement, the next immediate step is applying for a mortgage to get the pre-approval letter. You’ll need to submit a conditional approval letter with the purchase offer.

Here’s a tip: just because you fill out a loan application with one company doesn’t mean you can’t change your mind and get financing from a different one. Get updated market rates from at least three different lenders, giving you plenty of options regarding mortgage rates and loan terms. Credit card companies give you a narrow window where mortgage companies can pull a credit check and count it as one credit inquiry on your credit history. Always compare the fine print on loan estimates, like the cost of points and origination fees.

Filling out a mortgage application will slightly differ depending on the lender and the loan package you’re seeking. Many now have the mortgage process online. You might do this in person or online or ask your loan representative to do it for you.

The applications themselves are quite lengthy. You’ll be asked for detailed information about your financial situation, including debts and assets, and questions about your employment history. All this information must be backed by paperwork in the form of W2s, bank statements, loan statements, and other documents. The lenders will use this information to assess your income ratio and if you can afford the home.

Of course, you must include the loan amount and proof of downpayment funds.

Even though not every lender will require it, it’s a good idea to hire a home inspector at this stage to ensure there are no surprises with the house’s condition.

Real estate agents will also ask to be looped in with who your chosen lender is. They will coordinate the closing process with the lender.

Review the Loan Estimate

Each mortgage lender you apply with will provide you with a mortgage estimate. They are required to do so within three business days of the completed application submission. Compare them to find the one that’s best for you, paying close attention to:

Estimated closing costs
Estimated monthly mortgage payment
Prepayment penalties
Annual percentage rate (APR)
Interest rate payments
Total cost in five years

Ask as many questions as needed before committing to your top-choice mortgage lender.

Wait for the Loan to Be Processed

Now is the hard part: waiting. Your application will have to be processed by a mortgage underwriter. Every claim you make, from your salary to your tax records, will be verified. Expect this to take two to three weeks. The lender’s loan officers may ask you more questions. Your credit scores will be pulled, and your financial history will be analyzed. Be ready to provide any relevant additional documentation if needed. The lender will order a home appraisal, of which you will receive a copy.

Help with Underwriting as Needed

Finally, you get a little break in the underwriting stage. While you may have to answer a few questions, this stage is mostly the underwriter’s responsibility as they assess the risk of lending you money. They will analyze the likelihood of you paying the money back on time and what steps relate to minimizing the risk of the house losing value. For example, if your home is in a flood zone, the underwriter will ask for proof you have purchased flood insurance. All lenders want to see homeowners insurance as a condition of mortgage approval. Once all documents have been received by underwriting, receiving a clear to close usually takes no more than three days.

Get the Good News!

Last (and best!) is your mortgage being cleared to close. The ball is in your lender’s court to contact you and tell you the good news. The lender must provide a closing disclosure three business days before closing. Compare your closing disclosure to the loan estimate and ensure all the numbers are identical. This estimate will also state your final closing costs and monthly mortgage payment amount. Follow up with your lender if there are any discrepancies. Otherwise, the loan will be yours once you’ve finished signing the mortgage documents at the closing table!

Discover How Easy Mortgage Applications Can Be!

The buying process has multiple and often concurrently running steps. Applying for a mortgage is just one of the tasks in becoming a homeowner. If you have more questions about applying for a mortgage, a local Mortgage Professional will gladly help you. They work with all kinds of first-time homebuyers navigating this confusing process and would be happy to put your mind at ease.

Updated March 2024

Preston Guyton Founder @ ez Home Search

Preston Guyton has spent 20+ years helping people find the right home—and helping them avoid the costly mistakes that often come from not knowing their options. As the founder of ez Home Search, he’s leading the charge to build a better way to discover real estate—one that puts your privacy first, delivers accurate information, and gives you the confidence to make informed decisions. Preston has assembled a powerhouse team—made up of the innovators behind many of the technologies people use every day—to build the tools and transparency that deliver on a single mission: A Better Way To Discover Real Estate.