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How to Apply for a Home Loan in 6 Steps

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The process of applying for a mortgage is becoming easier, with many lenders offering online options. However, a standard mortgage application is five pages long with 10 sections to complete. If you don’t know how to apply for a home loan, forgetting to list a bank account or a co-borrower could lead to snafus later.

Not sure what to expect? Follow these six steps to apply for a home loan.

  1. Gather your financial paperwork
  2. Know basic mortgage loan requirements
  3. Choose the right type of mortgage
  4. Consider factors that aren’t on the mortgage application
  5. Choose the right type of mortgage lender
  6. Fill out a mortgage application

1.Gather your financial paperwork

Having accurate answers to home loan application questions can prevent surprises once the mortgage process is underway. If you provide the right mortgage documents upfront, you’ll likely have a smoother mortgage closing.

Here’s what you’ll need:

  • Full name. List your full legal name, and add suffixes in the name field so only your credit information is pulled.
  • Dependents. The definition of dependents varies by loan type. For example, loans guaranteed by the U.S. Department of Veterans Affairs require the ages and number of children in a family.
  • Address history. Two years’ worth of addresses will be needed. The lender matches this information to your credit report.
  • Total assets. Collect two months’ worth of bank and retirement statements. If you have money in a 401(k) and/or retirement funds, adding those to the mix will strengthen your application.
  • Employment and income information. In addition to pay stubs and W-2s for the last two years, provide the company name, address and phone number for your current employer. Lenders will need the information to verify your employment again before closing.
  • Special documents. Provide paperwork to document any unique income, credit or application issues, including:
    • A divorce decree (to show debts paid by an ex-spouse)
    • Proof of child support you pay or receive
    • Bankruptcy documentation
    • Federal or past-due tax payment plans
    • Business and personal tax returns (if you’re self-employed)
    • Cosigned loans

2. Know basic mortgage loan requirements

In the lending world, minimum mortgage requirements are based on the “three Cs” of underwriting — capacity, credit reputation and collateral. In simpler terms, they refer to your debt-to-income (DTI) ratio, credit score and assets. If you don’t know how to apply for a home loan, knowing the folllowing guidelines will help you better understand how lenders evaluate your application.

  • DTI ratio. Lenders divide your total debt by pretax income to determine your DTI. It’s an important measure used to determine whether you can repay the loan. The “qualified mortgage” rule recommends a DTI ratio at or below 43%.
  • Credit score. Although you can get approved for a mortgage with a score as low as 500 (with a 10% down payment), you’ll snag a lower interest rate with a score of 740 or higher. Paying bills on time and keeping credit balances below 30% may boost your credit score.
  • Verifying assets. When you’re getting a home loan, lenders generally look at three factors related to your assets:
    • How much you have for a down payment and closing costs. The more you can put down, the lower your payment will be.
    • How much extra money you have. In lending terms, these are called cash reserves. An extra two or three months’ worth of mortgage payments in the bank could boost your approval odds.
    • How the money got there. Large cash deposits can be a red flag. If there’s no paper trail for the money, lenders may deny your mortgage approval.

3. Choose the right type of mortgage

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 describes the benefits of some of the most common loan types:

Loan type Best for:
30-year fixed Lowest fixed-rate payment
15-year fixed Paying your loan off faster at a lower interest rate
Conventional Down payments as low as 3% and credit scores of 620 or higher
FHA* Credit scores down to 580 with 3.5% down or 500 with 10% down
VA** For eligible active-duty service members, veterans and eligible spouses with 0% down, no minimum credit score and no mortgage insurance
USDA*** Low- to moderate-income borrowers in rural areas with a 0% down payment.

*FHA loans are backed by the Federal Housing Administration.
**VA loans are guaranteed by the U.S. Department of Veterans Affairs.
***The U.S. Department of Agriculture backs USDA mortgage loans in USDA-eligible rural areas.

4. Consider factors that aren’t on the mortgage application

What’s your monthly payment comfort level? Just because lenders allow a monthly payment up to 43% of your income (or higher, in some cases) doesn’t mean you should spend that much. Decide on a monthly payment that fits your budget, and stick to that number. Don’t forget to look at your entire budget, including expenses that lenders don’t consider in their evaluation such as healthcare, childcare, education, utilities and groceries.

What about homeownership costs? You won’t find any questions about home maintenance or repairs when you complete a standard home loan application. Budgeting 1% of the price of your home toward these expenses each year will help cover unexpected costs.

5. Choose the right type of mortgage lender

Make a list of mortgage companies and get loan estimates from at least three to five lenders. Or use a comparison rate site to have lenders contact you before completing a mortgage loan application. Luckily, you’ll have no shortage of options, including:

  • Mortgage bankers. Mortgage banks offer a wide variety of programs, and the entire mortgage process is usually handled in-house. This could translate to a faster closing and more flexibility to work with borrowers with unique situations.
  • Mortgage brokers. Mortgage brokers work with multiple lenders to provide more options than a single mortgage bank. 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.
  • Institutional banks. Your local bank may offer mortgages with a lower rate if you carry a large deposit balance. Depending on the bank, though, loan offerings may be limited.

6. Fill out a mortgage application

Once you’ve completed the steps above, the actual application process should be quick and easy — you just need to decide how you want to apply. Each lender is required to provide a loan estimate (LE) within three business days of submitting a mortgage application. Keep copies of each estimate you receive to negotiate your interest rate and closing costs later.

  • Online application. Whether it’s on your laptop, desktop or smartphone, many lenders offer options to apply for a mortgage online.
  • Over-the-phone applications. Many lenders allow borrowers to apply by phone. A loan officer can walk you through each section, and give you feedback along the way.
  • In-person. You’ll be able to see your credit report, review a loan estimate and get a preapproval letter on the spot with an in-person mortgage application. With all of your mortgage documents in hand, the lender can move your application to the final approval stage.

What happens after you apply for a home loan?

Once the loan application process is complete and your preapproval letter is in hand, you’re ready to get the ball rolling. Here’s a list of action items for after you’ve been preapproved for a mortgage:

  • Find a home. After you’ve been preapproved, you’ll know exactly how much house you can afford. Work with a real estate agent to find the right home that meets your criteria and fits within your budget.
  • Make an offer. When you find the right house, your real estate agent can help you submit an offer, which spells out the purchase price, a closing date and any contingencies to the contract. The seller will either come back with a counter offer, reject your offer or accept it.
  • Lock in your rate. Once your offer is accepted, you’ll finalize your loan terms. You should also consider getting a mortgage rate lock.
  • Schedule a home inspection and appraisal. The home inspection identifies potential issues. It protects your investment and gives you an escape hatch (with an inspection contingency) if the seller refuses to repair problems or negotiate the price. Your lender will order a home appraisal, which is an unbiased opinion of your home’s value based on recent similar home sales.
  • Provide additional paperwork. During the final mortgage process, your lender may reverify information on your mortgage application and ask for updated documents like pay stubs and bank statements. Lenders also recheck your credit score, so avoid opening any new credit lines or making large purchases until after closing.
  • Review the final figures. A closing disclosure is issued three business days before closing. Compare the final numbers to your initial loan estimate and discuss any concerns with your loan officer.
  • Close on your purchase and get your keys. After checking the home to make sure it’s move-in ready, you’ll attend closing. That’s where you’ll sign final paperwork, provide your closing funds and pick up your keys. Congrats!

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