Before most house hunters can close the deal, they need to qualify for a mortgage. Learning how to apply for a mortgage in advance — and breaking the process down into digestible steps — can help applicants feel better prepared and avoid any unpleasant surprises during the process. (Good news: The mortgage application process is one of those things that is more complicated to explain than to experience!)
Ready to learn how to apply for a home loan? Here are the nine steps in the mortgage process, including moves you can make that may expedite your approval.
1. Estimate Your Budget
Before any mortgage application, your first step should be figuring out how much house you can afford. Being realistic about your budget — factoring in income, debts, monthly spending, down payment savings, and more — can keep you from shopping outside your budget.
Certain budgeting guidelines can help you determine what kind of monthly mortgage payment you can afford. You’ll also want to figure in homeowners insurance, property taxes, and (possibly) private mortgage insurance, or PMI. Some popular methods for calculating your mortgage budget include:
• The 28% rule: No more than 28% of your gross monthly income should go to a mortgage payment.
• The 35% / 45% guideline: Your total monthly debt should be no more than 35% of your pre-tax income or 45% of your post-tax income.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
When calculating your budget, don’t forget the down payment. A higher down payment can yield a lower monthly payment — and putting down 20% or more could help you avoid PMI — but don’t drain your savings for a down payment. You want to have savings on hand should you need to cover emergency home repair costs down the line.
💡 Quick Tip: SoFi Home Loans are available with flexible term options and down payments as low as 3%.*
2. Choose a Mortgage Type and Term
There are many different mortgage types, and choosing one will depend on your income, down payment, location, financial approach, and lifestyle.
Note: SoFi does not offer USDA loans at this time. However, SoFi does offer FHA, VA, and conventional loan options.
Some choices you’ll need to make at this stage of the mortgage process are:
• A conventional home loan or government-insured loan (FHA loan, USDA loan, or VA loan)
• A fixed-rate or adjustable-rate mortgage
• Your repayment term: typically 15, 20, or 30 years
• A conforming or nonconforming loan (such as a jumbo loan)
• If you should opt for an interest-only mortgage
A good lender will walk you through your options, whether it’s a HUD home requiring an FHA mortgage or a high-priced home with a jumbo loan.
3. Get Preapproved
At this stage in the mortgage application process, you can shop around for multiple mortgage lenders and even get prequalified. Look for lenders that not only offer you a great rate but that are also willing to help you navigate the mortgage process. Here are a few questions to ask a lender to narrow down your list.
Found the perfect lender? Then it’s time to get preapproved. During the mortgage preapproval process, you’ll complete a full mortgage application. The lender will perform a hard credit inquiry and issue a letter confirming your ability to borrow a certain amount of money.
In general, the better your credit score, the better the mortgage rate you’ll be approved for. If your score is above 740, you’ll qualify for the best rates. But in general, you’ll need a minimum 620 credit score to buy a house.
A preapproval letter, usually good for up to 90 days, can improve your odds of winning over a seller in a bidding war. In competitive markets, having a preapproval letter may even be a requirement.
Getting preapproved requires some work on your part. You’ll need to furnish the lender with proof that you can afford the mortgage, which typically includes the following documents:
• Bank statements
• Paystubs
• Tax returns
• W-2s
• Retirement account statements
• Gift letter (if you received help from a family member to fund your down payment)
• Identification
Mortgage lenders prefer borrowers who have stable, predictable incomes. A steady employment history signals to the lender that you have regular income coming in to make the monthly payments of a mortgage. That’s why it’s easier to get approval as a W-2 employee than as a self-employed worker.
In general, lenders like to see two years of employment on a loan application. Self-employed individuals will submit two years of tax returns.
Recommended: What’s the Difference Between a Hard and Soft Credit Inquiry?
4.Find a Property and Make an Offer
Your real estate agent will guide you through the process of finding a property and making an offer on a house. The offer is typically written by the buyer’s agent on a standardized form.
Only make offers on properties that fall within the amount you’ve been preapproved for. Otherwise, the lender will need to re-process your full application again. If you don’t qualify for the new, larger amount, you may not be able to secure any loan on the property.
Your offer will typically include earnest money — a good-faith deposit you’re making on the house. It’s usually 1% to 3% of the offer price, and it’s meant to make your offer more attractive to the buyer.
If your offer is accepted, you’ll send the signed paperwork to your lender.
5. Submit a Mortgage Application
Lenders are required to do a second credit check before final mortgage loan approval and will likely ask for further documentation. If you’ve opened a new account, changed jobs, or made a major purchase since preapproval, those actions will have to be vetted.
Responding quickly to your lender’s requests for documentation can help keep your application on track. Your lender likely has most of the required forms from your preapproval application, but in general, you’ll need:
• Documentation of income: W-2s or 1099s, profit-and-loss statements if self-employed, paystubs, Social Security and retirement account info, information on alimony and child support, etc.
• Documentation of assets: Bank accounts, real estate, investment accounts, gifted funds, etc.
• Documentation of debts: Any current mortgage if you own a home, car loans, credit cards, student loans, etc.
• Information on property: Street address, sale price, property size, property taxes, etc.
• Employment documentation: Current employer information, salary information, position/title, length of time at employer, etc.
💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.
6. Be Patient and Avoid New Debt
The average time between submitting a mortgage application and closing is 50 days. During this period, it’s wise to observe a self-imposed “credit freeze.” That is, don’t run up your credit cards beyond what you usually spend each month. Put off major purchases. Don’t apply for new credit cards, auto loans, or take on any other new debt. And, of course, make sure to pay all your bills on time.
If there’s any significant change in your credit history, your closing may be delayed or even derailed. Should something major come up (like an expensive medical emergency), call your lender to let them know.
It can be tough feeling like your life is on hold while you’re waiting for your mortgage application to be processed. Try to be patient and just let the process play out. Now is a good time to reach out to friends and family who have been through the mortgage loan process before and commiserate. Consider this your orientation into the homeownership club.
Recommended: What’s a Mortgage Commitment Letter?
7. Get a Home Inspection
Home inspections may not be required — but they’re a crucial part of the mortgage loan process. Hire an inspector (your real estate agent may have recommendations, but you can shop around) to thoroughly check the property inside and out for undisclosed problems. If the inspector uncovers expensive issues, you may negotiate for a price reduction or back out of the deal without penalty.
Inspectors will look for a wide range of issues, but some inspectors are more thorough than others. Review this home inspection checklist to make sure your inspector will cover all the bases. In some cases, a general home inspector may find an issue that requires a more specific expert to take a look (and yes, that’ll cost more money — but it may be worth the cost).
Don’t let the infatuation with your dream home blind you. If there are serious issues that come up during the inspection and the sellers won’t budge on price (or agree to fix them before closing), seriously consider walking away. You won’t recoup the money you paid for the inspection — a home inspection costs between $300 and $500 — but if it keeps you from investing in a money pit, it’s money well spent.
8. Go Through the Mortgage Underwriting Process
A major part of mortgage loan processing is the underwriting process. But what is underwriting? The underwriting process begins after you complete your mortgage application and ends after all the documentation has been completed and includes the appraisal. During this process, the underwriter examines the borrower’s financials, as well as the appraisal, title search, and proof of homeowners insurance.
An appraisal is an independent property evaluation of a home’s value. It will describe the home and what makes it valuable. Factors that affect the appraisal value include the location, condition, amenities and features, and market conditions in the area.
A lender requires a home appraisal to ensure that it isn’t lending more than the property is worth. If the appraisal comes in too low, the lender won’t lend extra money to cover the gap. Buyers will need to cover the difference with their own money or renegotiate the price with the seller to match the appraisal.
Once the appraisal is complete and all documentation has been reviewed and verified, the underwriter will recommend approval, denial, or pending. A pending decision is given when information is incomplete. You may still be able to get the loan by providing the documentation asked for.
After underwriting approval with a “clear to close,” you’re set to close on your loan.
Recommended: Local Housing Market Trends
9. Close on Your New Home
Closing day is when all parties sign the final documents, and ownership is legally transferred from the sellers.
In the days prior to your close, the lender should provide a final list of closing costs. Closing costs are typically 3% to 6% of the mortgage principal and consist of:
• Lender fees
• Appraisal and survey fees
• Title service
• Recording fees
• Home warranty costs
• First year’s premium of PMI
You can pay closing costs by wire transfer a day or two before, or by cashier’s check or certified check the day of closing.
Before arriving at closing, however, you’ll want to do a final walk-through of the property. During this walk-through, confirm that the sellers have made all the repairs agreed to — and that the buyers haven’t removed anything, like appliances, that were meant to be left, per the purchase agreement.
In the past, buyers and sellers, their agents, and lawyers would gather in the same room to sign the paperwork at closing. In recent years, remote online closings have become more common.
The Takeaway
Applying for and securing a home mortgage loan follows a simple process that can seem complicated the first time you do it. But if you reply to questions promptly and are organized with your documents, it’s actually pretty simple — even if it does involve a little waiting time.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
What are the first steps of applying for a mortgage?
The first step when applying for a mortgage is estimating how much house you can actually afford. Once you have an idea of your budget, you can research mortgage types and lenders and get preapproved for a loan.
What are the steps of mortgage loan processing?
During mortgage loan processing, an underwriter will first review your personal information and information about the sale property to determine approval. The potential lender will request an appraisal of the home, and also request additional documents from you as needed. Finally, the underwriter will recommend approval or denial of the loan.
How long is a mortgage loan in processing?
It takes a little under two months from the date you submit your mortgage application and close on the house — the average timeline is 50 days. In some scenarios, you may be able to close in as little as 30 days.
How do you know when your mortgage loan is approved?
Your mortgage loan officer will contact you when your loan is approved. They may call you to give you the good news, but you’ll want to see it in writing so watch for an email as well.
What should I avoid after applying for a mortgage?
You want to keep your financial situation as stable as possible during the mortgage application process. That means don’t open new credit accounts, and keep your credit utilization down (no extra swipes on those credit cards). Don’t fall behind on any bill, either.
Photo credit: iStock/MicroStockHub
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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