The Mortgage Process: 10 Steps to Mortgage Approval

The mortgage process is like a job interview — except it’s based entirely on your financial background. Lenders scrutinize your credit history, income, employment and savings experience to see if you meet their guidelines. They review your financial documents like a resume to determine if you have the money management skills to meet their one major requirement: the ability to repay your mortgage.

We’ll help you understand the steps in the mortgage process to improve the odds you’ll be a solid candidate for homeownership.

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1. Estimate how much home you can afford

A little number crunching with a home affordability calculator will give you an idea of how much a lender thinks you can handle. Lenders primarily base your ability to pay a mortgage on your debt-to-income (DTI) ratio, which measures how much of your income is committed to your new mortgage payment along with other monthly debt.

DTI calculations don’t include expenses like family phone plans, gym memberships, car insurance premiums or anything that doesn’t show up on a credit report. Leave some wiggle room in your budget for your lifestyle and throw in a little extra for home maintenance and repairs.

Check your credit before you get to the next step.

Your credit score has a major impact on the interest rate you’re quoted. You’ll need at least a 780 to qualify for the best conventional mortgage rates. Some loan programs allow scores as low as 500, but you’ll pay a higher rate and have a higher payment, which reduces the loan amount you qualify for.

2. Get a mortgage preapproval and gather your financial documents

If you’re serious about buying a home, the next step is to get a mortgage preapproval.

First, request rates from at least three lenders, and review their loan estimates to see who offers the lowest closing costs at the best rates. You’ll then complete a loan application, and each lender will vet your credit, income and savings documents.

You’ll typically need to submit:

• One month’s worth of current paystubs
• Two years’ worth of W-2s or tax returns
• Two month’s worth of bank or asset statements
• Two year’s worth of addresses
• Two year’s worth of employer addresses and contact information

If your financial profile meets the lenders’ requirements, you’ll receive a preapproval letter from each one that confirms the loan amount from your estimate. Pick the best one out of the batch and attach the preapproval letter to offers you make in the next step.

 Read more about our picks for the best mortgage lenders.

3. Find your home

Most buyers work with a real estate agent to find their home and help them negotiate the price and terms of the purchase. Give your realtor your preapproval letter from the lender you choose in Step 2 so they can include it on any offers you make. This lets the seller know you’re serious and able to complete the purchase.

Keep in mind that your real estate agent can also help you negotiate for the seller to pay mortgage closing costs as part of your contract. Doing so could save you a chunk of change, considering average closing costs range from 2% to 6% of your loan amount.

4. Get a home inspection

Once you have an accepted contract, you’ll typically get a home inspection for an in-depth look — from the roof to the foundation — at the home’s condition. You can ask the seller to repair any issues that are discovered or see if they’re willing to cover a portion of your closing costs instead. In the latter case, the money you save can then be put towards repairs.

If the seller isn’t willing to fix anything, you can walk away and get a refund of any upfront earnest money. If the house requires a lot of work before closing, make sure the lock period you choose in Step 5 is long enough to cover any contractor or repair completion delays.

5. Finalize your mortgage lender and lock your rate

This is one of the most important mortgage process steps. Revisit the lenders you chose in Step 2 and ask them to update rate quotes based on the home you’re buying. The extra effort could help you snag a rate from a lender that wasn’t as competitive your first go round. Once you choose your lender, request a mortgage rate lock to secure your desired rate — until you do, your rate is “floating”, which means it could change at any time.

After your loan is locked, you’ll receive an updated loan estimate with a lock expiration date — be sure to jot the date down somewhere you’ll remember. If you don’t close by that date, you could end up paying pricey lock extension fees based on a flat percentage of your loan amount or a daily fee set by the lender.

6. Get your home appraised

A mortgage preapproval is based primarily on your “credit” profile, which includes your credit, income and savings history. Final approval is based on vetting the home you’re buying.

A home appraisal is a report completed by a licensed third-party real estate appraiser, and is usually completed after you sign off on your home inspection. The appraiser compares your home’s features to other recent nearby home sales with similar square footage, layouts and amenities. As long as the value is equal to or more than the purchase price you agreed to, you can head to the next step.

If the appraised value is below the sales price, you have three options:

1. Renegotiate the sales price to match the lower value
2. Pay the difference at the closing table
3. Cancel the contract and find another house

See if you qualify to skip your appraisal

If you’re making a big down payment (20% or more) on a conventional loan, you may be eligible for an appraisal waiver. You’ll save $300 to $400 on appraisal costs and speed up the mortgage process.

7. Finalize your underwriting approval

This is the “dot the I’s and cross the T’s” part of the mortgage process, and it’s important to pay attention to the following four details so the lender can prepare your loan closing paperwork.

1. Provide final documents as they’re requested. This may include your most recent pay stub or bank statement.
2. Finalize your homeowners insurance. Once you’ve shopped for homeowners insurance, provide the contact information to the lender so they can tie the policy to your mortgage account.
3. Decide on your title vesting. Title vesting determines what happens to the home if you or a co-borrower dies. Your escrow officer or the attorney handling your transaction can explain the pros and cons of each type of vesting.
4. Don’t change jobs, deposit cash or open new credit. Lenders usually do a final checkup on your employment, assets and credit, and any changes could delay your closing or even result in a loan denial.

8. Review your closing disclosure

Once everything in Step 6 has been signed off on, the lender will issue your closing disclosure. All of the numbers should be finalized at this point. Double-check your rate and your name’s spelling and make sure you get credit for anything the seller agreed to pay on your behalf.

By law, the lender must provide the closing disclosure at least three business days before your closing day to give you time to review it and correct any discrepancies or errors.

9. Gather your down payment and closing cost funds

The attorney or escrow officer handling your closing gives you the final dollar amount needed at closing for any remaining down payment or closing costs. You’ll prepare a cashier’s check or wire funds directly to the escrow account set up for your purchase.

Caution: Watch out for wire fraud.

Real estate wire fraud is a multibillion-dollar problem in the U.S., and the scam involves hackers impersonating real estate agents, loan officers or title company employees to trick you into sending them money that is virtually impossible to recoup.

Always verify the wiring instructions with at least two people on the phone (for example, with your loan officer and escrow officer). Never respond by email or text to someone telling you the wiring instructions have changed.

10. Close on your mortgage

To close on your home, you may sign your paperwork electronically, with a notary or in an escrow or attorney’s office. Once the package goes back to the lender, mortgage funds are sent to the escrow company, and everyone involved in the purchase is paid for their fees and services. The title company transfers ownership into your name at the local recorder’s office, and you officially become a homeowner.

Your closing package should include information about where to send your first mortgage payment. Be on the lookout for changes to how and where your payments are made — lenders often sell mortgages to loan servicing companies that handle your future payments.