How to Apply for a Mortgage Loan in 6 Steps
Keep the following six steps in mind as you apply for a mortgage loan — they may just save you from running into delays during the loan process.
1. Gather your financial paperwork
Once the mortgage process is underway, you can prevent surprises by providing accurate answers to home loan application questions. If you share the right mortgage documents upfront, you’ll likely have a smoother lending experience.
Here’s what information you’ll need to provide:
Full name: Enter your full legal name, including any suffixes, to ensure that only your credit information is pulled.
Dependents: The definition of dependents varies by loan type. For example, VA loans from the U.S. Department of Veterans Affairs (VA) require the number and ages of your children.
Address history: You’ll need to include your addresses from the past two years. Lenders match this information to your credit report.
Total assets: Provide two months of bank and retirement account statements. If you have money in a 401(k) and/or retirement funds, adding those to the mix can strengthen your application.
Employment and income information: Submit pay stubs and W-2s for the past two years, along with your current employer’s name, address and phone number. Lenders need the information to verify your employment again before closing.
Special documents for unique circumstances
Provide paperwork to document any unique income, credit or application issues, including:
- A divorce decree (to verify alimony payments)
- Proof of child support paid or received
- Bankruptcy records
- Federal or past-due tax payment plans
- Business and personal tax returns (if you’re self-employed)
- Documentation for any cosigned loans
2. Know basic mortgage loan requirements
DTI ratio: 45% or less
Lenders divide your total debt by your pretax income to determine your debt-to-income (DTI) ratio. It’s an important measure of your ability to repay the loan. Most loans require a DTI ratio at or below 45%.
Credit score: 500 or higher
Although you can get approved for a mortgage with a score as low as 500 (combined with a 10% down payment), you may get better rates and terms if you have a 780 score or higher. Paying bills on time and keeping your credit utilization ratio between 1% and 30% can help boost your credit score.
Don’t know your credit score? Get your free score on LendingTree Spring today.Down payment amount and other assets
When you’re applying for a home loan, lenders generally look at three factors related to your assets:
- How much you have for your down payment and closing costs. The more you can put down, the lower your loan amount and monthly payment will be.
- How much you have in liquid savings. These are known as cash reserves. Having an extra two or three months’ worth of mortgage payments in the bank can increase your chances of approval.
- How the money got there. Large, unexplained cash deposits can be a red flag. If there’s no paper trail for the money, lenders may deny your mortgage application.
Loan-to-value ratio: 80% to 100%
A loan-to-value (LTV) ratio measures the percentage of your home’s value you’re borrowing through a mortgage. Your LTV ratio may affect your interest rate, how much you can borrow, and your monthly payment. The maximum allowed varies by loan program, but most purchase loans will cap your LTV at about 97%, though VA loans and USDA loans may offer a little more leeway.
View a list of the LTV requirements for common loan types.
3. Choose the right mortgage type
A loan officer reviews your mortgage application to see if it meets the home loan requirements of a number of different programs. The table below outlines some of the most common mortgage types and their key benefits:
| Loan type | Why you might choose it |
|---|---|
| 30-year fixed | You want the lowest fixed-rate payment possible. |
| 15-year fixed | You want to pay off your loan faster at a lower interest rate. |
| Conventional | You want to make a 3% down payment and have at least a 620 credit score. |
| FHA | You have a 580 credit score and can make a 3.5% down payment.You have a 500 credit score and can make a 10% down payment. |
| VA | You’re an eligible active-duty service member, veteran or eligible spouse.You don’t have money for a down payment.You want to avoid mortgage insurance.You want the flexibility of a program with no minimum credit score. |
| USDA | You want to buy a home in a rural area with no down payment.You earn a low to moderate income. |
Learn more about how to decide between a 15-year vs. a 30-year mortgage.
4. Consider factors that aren’t on the mortgage application
When applying for a mortgage, you need to consider many costs beyond your monthly mortgage payment, such as:
- Health care expenses
- Child care costs
- Utilities
- Groceries
- Education goals
- Savings goals
It’s a smart idea to decide on your “payment comfort level” before you apply for a mortgage to ensure you don’t take on a mortgage that’s larger than you can comfortably afford.
Just because lenders approve you to borrow up to 43% of your total income doesn’t mean you should spend that much. Lenders don’t consider your lifestyle, daily personal expenses or financial priorities — only you can do that.
If you need help assessing your finances, reach out to a housing counselor.
Add homeownership costs to your budget
5. Choose the right mortgage lender
One simple way to save big is to make a list of mortgage lenders and get loan estimates from at least three to five of them — all on the same day. You can then compare interest rates, fees and other costs. Comparison shopping like this saved homebuyers an average of $212 per month — and $76,410 over the life of a 30-year loan, according to LendingTree data.
As you look for lenders, you may want to consider working with both mortgage banks and brokers.
→ Banks and credit unions: Banks and credit unions offer a wide variety of loan programs. Since they lend the money directly, the entire mortgage process is usually handled in-house. This could translate to a faster closing and more flexibility to work with borrowers who have unique situations.
→ Mortgage brokers: Mortgage brokers work with multiple lenders to provide more loan options than a single bank might offer. However, brokers generally rely on the banks to approve and fund your loan, and don’t have any say in whether your loan is approved or denied.
Read more about our picks for the best mortgage lenders.
6. Fill out a mortgage application
Once you’ve completed the steps above, the actual application process should be relatively quick and easy — you just need to decide how you want to apply. Lenders are required to provide a loan estimate within three business days of receiving your mortgage application. Keep copies of each estimate so you can negotiate your interest rate and closing costs later.
You can typically apply in one of these ways:
- Online: Many lenders offer options to apply for a mortgage online, whether it’s on your laptop, desktop or smartphone.
- Over the phone: Many lenders allow borrowers to apply by phone. A loan officer can walk you through each section of the application and give you feedback along the way.
- In person or remotely: You can meet a loan officer for a face-to-face process in an office or remotely via video call. This can be a good way to make sure you understand the information being requested and avoid mistakes that could delay your loan approval.