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How to Get a Mortgage (March 2024)

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The events of the last few years have set up a difficult financial situation for everyone in the world, which has had a huge impact on people's lives. Even in the United States, bigger and more serious purchases, such as buying homes, have become very difficult to do. This is why a lot of people have to turn to mortgages, but even here — the rates are on the rise, and most are wondering what the best way to go around getting a mortgage is, what is the right move to make, and alike.

While this is a deep and complex topic that we could talk about for hours on end — today, our focus will be on what you can do to ensure that your mortgage application will be approved. At the very least, we will share advice that will increase your chances of having it approved. Even with the best tips that we can offer, however, keep in mind that this is usually a lengthy process that will require a lot of effort.

So, whether you know a bit about the process or if you don’t have a clue where to start — worry not. This guide will not only list all the processes that you should be aware of, but also break them down so you will know what to expect moving forward.

What documentation is required?

Getting a mortgage is a princess that requires both time and extensive documentation. Your lender will likely have to provide hundreds of thousands of dollars if you wish to buy a new home, and they will not give you that much money without ensuring that you can pay it back. As a result, you will have to provide the following documents:

  1. Your tax returns for the prior years
  2. Proof of income
  3. Rental history
  4. Proof of employment and employment history
  5. Identification
  6. Brokerage statements
  7. Bank statements
  8. Documents outlining gifts you have received to help pay for your home
  9. Any documentation involving other debts and other assets

Keep in mind that this is only a rough list of what will be needed, and your lender will request specific documents that you will have to obtain and submit in order to file your application accurately. Now, let’s talk about what things you need to do in order to get a mortgage.

How to get a mortgage: Step-by-step guide

In this segment, we will talk about 10 steps that you need to complete in order to get a mortgage. Once again, these steps do not guarantee that you will get a mortgage, as the final decision depends on the lender, but these steps will set you on the right path.

1. Ensure that you have a strong credit score

One of the first and most important things when seeking a mortgage is to ensure that you have a strong credit score. This will show the lenders that you are responsible when it comes to paying your dues in time and that you will treat your debt with the same level of precision. Furthermore, a high credit score is also very likely to bring you a better interest rate. While you can still get a loan with low credit, chances are that your interest rate will be much higher.

You can improve your credit score in several ways, such as ensuring that you make your payments on time, bringing any past-due accounts current if you can, checking for errors in your credit score as they do happen, and might reduce your score without it being your fault. Lastly, keep a close eye on your credit score, and check it at least three to six months before you apply for a mortgage. See the list of all the factors that are impacting it, whether in a good or a bad way and try to do whatever you can to keep it in check.

If your credit score is really bad, you should consider applying for a secured credit card to help build your credit score.

2. Be realistic when choosing a home

Everyone wants to own massive, impressive dream home, whether you are dreaming of a smart home or something more traditional. However, even though you are borrowing money to buy it, you need to be realistic about what you can afford. The times are tough, and rates are on the rise, which means that your monthly payments will be quite large already. With that in mind, it is key to target a home that you can pay off, and not spend years struggling to manage the payments only for the bank to take it away because you overestimated your capability to pay back the loan.

Experts recommend that you should get a loan that will have you pay back a maximum of 30% of your gross monthly income, so with that in mind – target the homes that fit within that price range. You can do so by calculating your debt-to-income ratio, which sums up your monthly debt payments and divide it by your gross monthly income.

Also keep in mind that you will have to purchase new things for your home, and potentially do some fixing or renovating, not to mention having to pay for things like transportation, medical cost, childcare, entertainment, food, and all the other things that you are already paying for. In other words, your life will not stop until you pay back the debt, and you will have to manage living with it.

3. Save up for your down payment

Next, you will have to make a down payment when taking out your mortgage, and the more you can afford to pay, the better. Usually, lenders prefer it when you can put down an amount equal to 20% or more, which is beneficial for you too, as it reduces your loan, makes you qualify for a better interest rate, and prevents you from having to pay private mortgage insurance.

Of course, very few people have that kind of money set aside, especially these days, after all the trials we have gone through over the last several years. So, if you haven’t already, we recommend saving up some money. Putting away a portion of your salary will be a good test to see if you can go through your month while paying off your debt, and then you can use that money as your down payment, which will surely lead to a more favorable deal.

Building up your savings in a savings account is also a good idea, and it is recommended that you put away around six months’ worth of mortgage payments. This way, you will be able to keep making the payments for half a year in case you lose your job or end up being forced to interrupt your work relationship due to some other reason. Things happen, and anyone can get sick or be prevented from working for some other reason, and if it does come to pass – you are risking losing the home that you spent so much time, money, and effort trying to obtain.

Lastly, you will also have closing costs to keep in mind, which is the fee you have to pay to finalize your mortgage. These are typically 2-5% of the loan’s principal. But, keep in mind that they do not include escrow payments, which are yet another separate expense.

4. Pick your mortgage carefully

After you have your credit score sorted and put some money on the side, it will be time to select the mortgage that you will target. To start off, make sure that you understand how different mortgages work, what is required for each type, and alike.

The main types include conventional loans, jumbo loans, and government-issued loans (VA, USDA, and FHA). Conventional loans are generally a good choice if you have solid credit and a decent down payment on the side. Jumbo loans are for more expensive properties, while government loans are the best for those who do not qualify for conventional loans. First-time homebuyers might find it worth looking into FHA loans as they have low credit score requirements. With a credit score of 500, you will have to put in a 10% down payment. However, if your credit score is only slightly higher – 580 – your down payment can drop to 3.5%.

Also, mortgages can have adjustable rates or fixed rates, meaning that they might change over time, or stay the same permanently. Most lenders offer loans that have to be paid off within 15 or 30 years, but there are also other time frames, such as 10 years, 20 years, 25 years, or even 40 years for some rather large loans.

5. Find the best lender

After you figure out which loan is your best option, your next step will be to find the lender that offers the best terms. In other words, different lenders might offer different deals for the same loan. This is why you should never take the first deal that you run into. Instead, you should consult different lenders and keep careful and precise notes about what kind of deal each of them offers.

That way, you will be able to compare the terms and find out which deal is the best fit for you and your situation. You should start by speaking with friends and family members and ask for referrals and their experiences. Also, be sure to check out rating websites and research each lender on the internet. That should help narrow down your list of lenders that you should consult.

Then, simply book meetings with each of them, find out what they have to offer, compare the offers, and make your choice. You can view our list of the best mortgage lenders.

6. Get pre-approved for a loan

Another thing that is highly recommended is to get pre-approved for a mortgage once you identify a lender that you wish to work with. Basically, this means that the lender will review your finances in order to determine if you stand a chance of having your application approved. Doing so will also reveal some important information, such as what amount the lender might be willing to lend you.

Trying to apply for a mortgage before getting the preapproval is far more likely to result in a rejection, and most lenders will not even consider your offer seriously if you are not preapproved.

7. Start looking for home offers

After you get preapproved, you will know that you officially stand a chance of getting the loan. It is at this point that you should start searching for the property that you will actually buy. We recommend that you do not rush this part of the process, as you will have to dedicate the next 15-30 years of your life to pay the debt that you’re getting into to buy your new home. In other words, make sure that whatever home you decide to buy is a place where you will want to live for at least that long.

Then, when you find the home that fits your financial capabilities and looks good enough for you to consider it – do not waste any time. While buying a home is not easy these days, that doesn’t mean that there is no competition out there. Someone else will grab the opportunity from you if you spend too much time hesitating and second-guessing yourself. Experts recommend that you monitor the market, but also social media, and once more, ask around if someone among your friends and family knows a home that is for sale. You will want to move as quickly as possible to secure your new house.

8. Apply for the loan

After identifying the home that you wish to purchase, it will be time to complete your mortgage application. These days, technological advancements have made it possible to perform most of these applications online, so you won’t have to spend too much time standing in lines. With that said, it might be more efficient to go to the lender directly, as it will help establish a more direct and personal relationship with the loan office. At the same time, you will be in a perfect position to ask any questions that you may have.

9. Wait until the underwriting process is completed

Nearing the end of the process, you will now have to be patient until the underwriting process is completed. While time is of the essence, this needs to be done, as even having a preapproval doesn’t mean that you will be granted a loan as soon as you ask for one. The lender will forward your application to its underwriting department, which does all the final calculations and risk evaluations, and determines the loan amount, the monthly payments, and all other details.

The underwriting process includes a few steps, such as verifying the information that you provided, appraisal of the property that you are buying to determine whether the amount you offered to pay is appropriate, researching the property to determine that ownership can be transferred, and then finally, you get the decision from the underwriter. Your application can be either denied, suspended until you provide more necessary documentation, approved with certain conditions, or fully approved with no other conditions.

10. Close on your new home

Once the mortgage is approved, you will finally be ready to make your move and complete the closing. The closing process is different in different states, but it mostly involves confirming that the seller is authorized to sell and transfer the title, collecting the money from the buyer, determining if there are other claims against the property that must be paid off, distributing the money from the buyer to the seller, and finally, paying additional fees and charges. These may include things like an appraisal fee, underwriting fees, credit check fees, attorney fees, recording fees, title insurance and services fees, and any prepaids that might be included.

Final thoughts

For a lot of people, buying a home is one of the greatest achievements in their lives. This is why it is something that needs to be done right, and since it is quite difficult to save up the money to cash out a home, the only option is to get a mortgage and pay for it from the lender’s pocket. Of course, you will first have to qualify for the loan, and that is something that can be quite challenging in and of itself. Hopefully, our guide on how to do it will help you find the appropriate loan and lender. After that, all it takes is to wait for the right home to appear on the market. It will all be worth it once you finally become the owner of the house you always wanted, so keep that in mind, and good luck.

Ali is a freelance writer covering the cryptocurrency markets and the blockchain industry. He has 8 years of experience writing about cryptocurrencies, technology, and trading. His work can be found in various high-profile investment sites including CCN, Capital.com, Bitcoinist, and NewsBTC.