How to get a mortgage: the process explained

When you picture yourself buying a new home, how do you envision the process? In an ideal world, you probably want to walk into the perfect house and just sign the deed. But we don’t live in an ideal world, and unless you are very lucky, you’ll have to consider your finances when purchasing real estate. Very few people have enough in their bank account to absorb the full price of a home upfront. So you’ll probably have to rely on a mortgage—a type of loan specifically intended for buying a home. This means that your first step into the real estate market, unfortunately, won’t be as magical as falling in love with a house; the first step toward owning property will instead be learning how to get a mortgage. This is itself a multi-step process, so it’s important that you learn as much about it as you can.

What is a mortgage, and when do you need one?

A mortgage is a type of loan that leverages your real estate property (house, apartment, or other building) as collateral. In practice, this means that you get to borrow a (typically large) sum of money from a lender; if you are unable to pay back that loan and the interest on it in the agreed-upon time period, the lender can seize the property you’ve put the mortgage on.

The property you’re putting up as collateral doesn’t, however, have to be in your possession when you take out the loan—you can also leverage future property. This makes mortgages especially attractive for people looking to buy a home. When you’re ready to get a new house, then, you’ll probably want to get a mortgage. You can leverage the property you’re buying in order to get the funds for the purchase itself. So you’ll be looking for a mortgage lender at the same time as the best real estate agents and top home warranty companies – when you’re in the market for a new home. However, remember that getting a mortgage takes time, as does finding the perfect house. You should start the process well in advance.

How to get a mortgage in ten simple steps

Mortgages are a little different from regular loans. They tend to have lower interest rates and longer loan terms because the amount you’re borrowing is significant. However, the conditions for them are typically stricter for the same reason. This means they’re more complicated to get, and you’re more likely to get rejected when applying for one. To help you avoid that, Consumer Opinion Guide has broken down the mortgage application process into 10 simple steps.

#1 Take a closer look at your finances

As is the case with any loan, a lender will decide to approve or reject your application based on their assessment of your ability to pay the mortgage back. This assessment is here to protect both you and the lender: the lender can be certain they’ll get their investment back, and you can be certain that you can actually afford the loan you’re getting. The assessment is based on a number of factors:

• primarily, lenders look at your credit score
• your annual earnings and employment status will also play a major role
• current and previous loans, including any existing mortgages, can help or hurt your chances
• current savings, specifically in an amount that will cover a down payment
• possession of other assets can be seen as proof that you are able to manage your finances
• major expenses and debts, such as unpaid student loans, for example, can make you ineligible for a mortgage

The better your financial standing, the more likely you are to get a mortgage. So examine your finances closely. Can you actually afford a loan at the moment? How much can you afford to pay for a monthly rate? Can you prove that you are financially able to take on debt right now? You can improve your chances by improving your finances. So try to save some money – consider cutting down on driving, plan to do DIY home repairs on your new house, or forego your annual vacation for a staycation in your new place.

#2 Improve your credit score

Your credit score is the biggest indicator of your ability to take on a mortgage. You’ll need at least a credit score of 620 to have any hope for a mortgage that isn’t specifically intended for vulnerable and low-income populations. However, for the best odds, you’ll want a credit score of 700 or above. If yours is not quite that high, you can improve it by:

• paying off any outstanding debts that you can
• paying rates on outstanding loans in time
• not opening any new accounts
• limiting your spending on credit cards
• increasing your credit limit

#3 Know what you can afford

Getting the mortgage is only the start. You’ll also have to pay the down payment, monthly rates, and regular expenses once you’ve bought the house. In the first couple of months, you may also need to budget for home repairs and improvements. That’s a lot of money that you’ll need to invest. Are you sure you have it? It’s important to be realistic about how big of a mortgage (and how big of a house) you can actually afford. You’ll be paying off this loan for a long time – it has to be something you can actually live with. If it’s not, you can easily lose the house, and then all the effort won’t be worth it at all.

#4 Choose the right type of mortgage

One of the biggest mistakes first-time home buyers make is to take any loan they can get. But not all mortgages are the same. And whether a lender wants you as a client is only one part of the equation; you should also make sure you want that specific loan. Here are some things to think about:

• conventional vs government-insured: If you can afford them, conventional loans are your best bet. The criteria for them tend to be financial only, you’ll have more options to choose from, and there are hundreds of lenders for them out there. But if you don’t have a good credit score or much down payment money saved up and you do fulfill the conditions for a government-insured loan (such as being in the military), you may want to explore those options as more secure and affordable.
• fixed vs adjustable rate: If you want to know exactly how much you’ll be paying at any given time, then a fixed rate is for you – it won’t change throughout the duration of the loan. If you’re willing to bet against the market, though, you can get an adjustable rate and hope you end up saving some money in the long run.
• loan term: The most common term for mortgages is 30 years. But you can also get shorter-term loans (10, 15, 20, or 25 years) and longer-term loans (40 years).

#5 Research and compare mortgage lenders

Another one of the most common mistakes home buyers make is to choose a lender based on convenience or availability at the moment. But this is a terrible idea. You’ll be dealing with this lender for the next 10 years at least – you want to make sure they’re the right choice. So talk to several different banks and financial institutions. Compare their mortgage rates and conditions to find something that actually suits you. Remember to also look into the lenders’ history: how long they’ve been in the business if they’ve had any issues in the past, and how satisfied their clients are. If you can’t find a lender, you are fully comfortable with and trusting of, then wait. It’s better to get a good mortgage down the line than settle for a bad one due to impatience.

#6 Get pre-approved for a loan

You’ll probably start looking at houses before you actually get a mortgage. This is actually a good idea, as finding the perfect home takes time. But if you do happen to find one, both you and the seller need to know that you are actually able to buy the property. This is why it’s a good idea to get pre-approved for a mortgage by at least two or three lenders. It will give you insight into the process and a better idea of what to expect from a mortgage. Furthermore, it shows you are serious about buying. So if you put in an offer on a house, you’ll be a real contender.

#7 Gather all the documents you need

Depending on the type of mortgage you are applying for and the lender you’re applying to, you may need to submit some different documents. But some of the basics that most applications require include:

• an ID and social security number
• pay slips from the last 30 days
• W-2 forms from the past two years
• tax returns from the past two years
• recent bank statements
• proof of income
• information about other long-term debts (like student or car loans)
• documentation regarding sources of large deposits into your accounts

The documentation for mortgage applications tends to be quite extensive. Luckily, these are all documents you may need for other things too. So when you’re later getting a home warranty plan, ensuring your property, or signing other contracts, you’ll already have everything handy.

#8 Submit your application

Once you have everything you need, it’s time to submit the application to the lender you have chosen. These days, most lenders allow you to submit things online. So with just a few clicks, your application can be on the way.

#9 Wait for a response

The process of examining and approving (or denying) a mortgage is called underwriting. During this time, an underwriter will look at your application, check your finances, determine whether you can take on a mortgage, and finally – get back to you with a decision. This process takes some time. If you’re very lucky, you’ll only wait for a couple of days. But typically, it takes more than a week to get the decision. The wait tends to be stressful. But at the end of it, you’ll know whether you’ve been approved, approved with conditions, suspended, or denied.

#10 Start house hunting

Assuming your application has been approved, you should now start seriously preparing to close on a house. If you haven’t found something yet or are unsure of the process, consider getting a realtor. They can help guide you through the purchase and are especially helpful if you’re a first-time buyer with no experience. Although this part of purchasing real estate can sometimes be stressful too, remember that the worst is behind you. Now you get to enjoy becoming a homeowner.

Tips to help you get approved for a mortgage every time

Sometimes, knowing how to get a mortgage, in theory, doesn’t translate into actually getting it in practice. A lender with strict criteria may reject your application if it’s not just right. But luckily, there are some things you can do to improve your chances. Firstly, don’t apply if you are not sure you are financially capable of taking on a major loan. Not only is it a waste of time, but on the off chance you are approved, it’ll also be a burden on you. Secondly, get professional help if you’re not sure what you’re doing. This will both diminish the amount of stress you’re under and give you a better chance at success. And finally, triple-check everything you’re submitting – sometimes, one piece of paper can be the difference between approval and denial.