How to Get a Mortgage (2023)

If you’re like most Americans—more than two-thirds of recent home buyers—then you’ll need a mortgage loan to make your ownership dreams a reality.

The process of getting a mortgage requires preparing your finances, gathering some important documents and having your home appraised, among other steps. Typically, you can expect it to take anywhere from four to six weeks from application to closing day—though you’ll usually want to start preparing at least a few months in advance of that.

It can all seem a little daunting, particularly when interest rates are high, but being informed and prepared can help ease the stress. Are you hoping to buy a home this year? We’ve simplified the mortgage process below. Follow these eight steps, and you’ll be well on your way to homeownership.

1. Get your finances in order

As soon as buying a home is on your radar, start prepping your finances. Begin by building your savings; you’ll need funds for both your down payment and closing costs.

The exact cost of these varies, but for most loan types, you’ll need a down payment of at least 3% of your estimated purchase price (though lenders usually require 20% to avoid private mortgage insurance). Closing costs generally come out to between 2% and 6% of the loan amount. Make sure to save extras such as moving costs and furniture, too.

“Down payment requirements will vary by loan programs and some other factors, but it’s always helpful to have a plentiful nest egg set aside when getting ready to purchase a new home,” says Scott Bridges, head of consumer lending at mortgage lender PennyMac. “Consider how much you’ll need to spend on appliances and furnishing the home as well.”

You should also pull your credit report and credit score to see where you stand. Depending on your loan type, you’ll usually need a credit score of at least 580 to qualify for a mortgage, though some lenders go down to 520. If you want the best interest rates, 760 should be your target.

When you pull your credit report, look for late payments and accounts in collections. These are issues that may give lenders pause when evaluating your application, so it’s best to get current on your debts now—before you apply for your loan. You should also look for errors on your report, as disputing these could improve your score.

“You need to know where you stand and have a sense of your credit profile—specifically, anything that could prevent you from obtaining financing or a more favorable interest rate,” Bridges says.

Finally, keep your income as consistent as possible in the months leading up to your purchase, and avoid opening new credit cards, racking up debt or making large purchases. These could all hurt your chances at qualifying for a mortgage—or at least one with a good rate.

2. Determine what you can afford

Figuring out how much house you can afford is the next step. This includes determining what size monthly payment you can comfortably carry and how large a down payment you can offer. Though many loan programs allow you to make very small down payments (or sometimes none at all), smaller down payments result in larger loan balances—and larger monthly payments. You may also owe mortgage insurance, which can increase your monthly costs as well.

When determining your monthly budget, follow the 28/36 rule, which says that your housing costs shouldn’t take up more than 28% of your monthly pretax income, and all your debts—mortgage included—should be 36% or less.

These are just general guidelines, though. The important thing is to make sure your payment is comfortable and leaves funds free for emergencies. Most experts recommend setting aside at least 1% of your home’s value for annual repairs and maintenance.

“Houses cost more than the money invested to purchase them,” s​​ays Brian Rugg, chief credit officer at mortgage lender loanDepot. “Always consider the cost of maintenance, and plan for unforeseen circumstances that may arise after you move in.”

3. Research mortgage loan types and lenders

There are two basic categories of mortgage: private and government backed. With government-backed mortgages, you still get the loan through a private lender, but the federal government agrees to repay them—at least partially—if you default on your loan. Because this lowers the risk lenders take on, these loans often come with less stringent qualifying requirements.

When choosing a loan program, your down payment, credit score and expected loan amount will each play a role. See below for a breakdown of common mortgage products and their minimum requirements. Keep in mind that lenders can impose stricter requirements, so it is important to shop around if you’re on the cusp of qualifying.

You’ll also need to decide whether you need a fixed- or adjustable-rate loan and how long of a loan term you want.

With a fixed-rate loan, your interest rate is set for the entire time you hold the mortgage. The rate on an adjustable-rate mortgage, or ARM, on the other hand will be fixed to start and then can rise or fall depending on market conditions.

ARM rates are typically fixed for the first three to 10 years of a 30-year term and then reset once or twice annually. Because the initial rate tends to be low, an ARM can be smart if you only plan to be in the home for a few years. Just make sure you understand the terms of your loan and if you don’t leave before it begins to adjust, be prepared for higher payments or to refinance.

As for your loan’s length, most home buyers opt for 30-year terms, which typically allow them to get the lowest monthly payment. Shorter-term loans, though, typically come with lower interest rates and can save you money over time. According to Freddie Mac, the spread between rates on 15-year and 30-year loans has averaged 0.56 percentage points since 1991. Though the difference has ranged from as little a quarter point to a full percentage point.

Finally, you’ll need to choose which lender (or lenders) you want to apply for preapproval with. When looking at lenders, check out their loan programs, advertised rates and reputation.

“Look at customer reviews from past borrowers,” says Alex Shekhtman, a mortgage broker and founder of LBC Mortgage in New York. “This will give you real-world insight into how easy or difficult it is to work with a particular lender.”

If you’re not sure where to start, consider our best mortgage lenders of 2023 winners. You should also consider the institution you bank with, as they may offer lower rates and fees for your loyalty.

4. Get preapproved

Now, it is time to apply for mortgage preapproval with the lender or lenders you’ve chosen.

During the preapproval step, lenders will evaluate your finances to determine whether you’re a good candidate for a mortgage and, if so, the loan amount and interest rate you would likely qualify for. (Lenders vary in how they use this terminology, but mortgage preapproval is usually more useful than prequalification, which involves a more basic financial check.)

“Mortgage preapproval sets an important precedent for a successful real estate transaction,” says Carolina ​Gerdts, an agent at RelatedISG Realty in Miami. “Buyers are more likely to have a smoother, quicker home buying process if they come prepared with preapproval from a lender.”

To get preapproved, you’ll need to fill out a short application about your income, debts, credit and finances. Most lenders allow you to do this online. You will usually need to submit several forms of financial documentation, too. These often include:

• Your last two W-2s and tax returns
• Your two most recent pay stubs
• The last two months of bank statements
• A profit and loss statement for your business (if you’re self-employed)
• The last two months of statements for any retirement or investment accounts you have

You must also agree to a credit check, which allows the lender to pull your credit report and score. Many borrowers apply with several lenders, as it can help you get the best interest rate.

5. Find a property and make an offer

Armed with your preapproval—and the real-estate agent of your choice (if you want)—you can now start the home search. Keep your preapproval amount in mind, but remember: That is just the maximum you can qualify for, not necessarily what’s right for your household budget.

Once you find a property you like, submit an offer, being sure to include your preapproval letter. This lets sellers know you’re likely to be approved for financing—and not back out of the transaction. As Rugg puts it, “It shows you’re serious about purchasing a home.”

6. Apply and lock your rate

If the seller accepts your offer, you’ll need to complete the full loan application for the lender you’ve chosen to work with. If you didn’t compare lenders at the preapproval step, now is the time. Make sure you apply with at least four lenders, as Freddie Mac has determined this will save you about $1,200 annually compared with getting just one quote.

When filling out your lender’s full application, you’ll provide information about your income, employment history, education, past residences and more—both for you and any co-borrowers you may have. Your lender may also request additional or updated documentation.

Once the lender has processed your full application, you can lock your interest rate—which guarantees your rate for between 30 and 90 days, depending on your lender. This essentially protects you from rate increases that may occur between when you apply and actually close on your loan. (If mortgage rates decrease during this period, you may be able to do a “float down,” which allows you to take advantage of the lower rate, usually for a small fee.)

7. Have the home appraised

One of the very last steps in the mortgage process is the appraisal, when a third-party professional hired by your lender assesses the home you want to buy and assigns it a value. They may do this through a physical evaluation of the home or by using property records and local home sales data.

“Mortgage lenders use appraisals to protect their investment in the home,” says Liz Lopez, a real-estate agent at RelatedISG Realty. Lenders typically won’t make a loan for more than the home’s appraised value.

If the appraised value of your home comes in lower than the purchase price you’ve offered, you have three choices:

1. Pay the difference between the appraised value and your offer out of pocket.
2. Renegotiate with the seller, asking them to accept the appraised amount or meet you somewhere in the middle.
3. If you have an appraisal contingency in your contract, you can back out of the deal entirely if the appraisal comes in too low.

In some cases, you may be able to request another appraisal (at your own cost), but this depends on your lender.

8. Close on your loan

Finally, your lender will assign you a closing date. According to ICE Mortgage Technology, the average purchase loan takes 43 days from application to closing. Depending on your state and transaction, your closing may occur at a lawyer’s office, the title agency or your lending institution.

Before you attend, make sure to get homeowner’s insurance, as lenders require this before you can close. You should also do a final walk-through of the property to check that requested repairs were made and that the home was left in good condition. Also be sure to review the closing disclosure, which details your final closing costs and fees.

“Your lender is obligated to provide you with a closing disclosure a minimum of three days in advance, which contains all the costs and terms of your mortgage,” Rugg says. “Once you are at this point, most of the hard work is done—but don’t be afraid to ask questions. It’s important that you understand everything you are signing.”

When the time comes, you’ll attend your closing. There, you’ll pay your down payment, closing costs and prepaid interest (for the days between your closing date and the last day of the month)—typically via wire transfer or cashier’s check—and sign all the final paperwork for your loan. Once all is said and done, you’ll receive the keys to your new house.

After you’ve closed on your mortgage loan

You won’t hear from your lender immediately after closing, but you can typically expect a welcome letter and payment booklet to arrive in the mail within the next few weeks. This will outline how to submit your monthly payments and how to get in touch with your lender if you have questions or concerns.

Since mortgage payments are made in arrears—meaning you pay on the first of the month for the previous month’s charges—you won’t owe a mortgage payment until the start of the second month following your closing date. (For example, if you closed on March 28, you wouldn’t have a payment due until May 1.)

For many homeowners, setting up autopayments is easiest for managing their mortgage. If you choose this option, be sure to check your account balance at the end of each month. You don’t want to accidentally overdraft your account and be penalized.