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How to Apply for a Home Loan in 6 Steps

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If you don’t know how to apply for a home loan, something as simple as forgetting to list a bank account or old address could lead to snafus later. Although many lenders offer online options to make the mortgage application process easier, following these six steps to apply for a home loan may save you time and potential delays in the loan process.

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 experience.

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 (VA) require the ages and number of children in a family.
  • Address history. You’ll need to include two years’ worth of addresses. 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 for special circumstances

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, collateral and credit reputation. 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 following guidelines will help you better understand how lenders evaluate your application.

DTI ratio. Lenders divide your total debt by your pretax income to determine your DTI ratio. 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 (and 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.

Loan-to-value ratio. A loan-to-value (LTV) ratio measures the percentage of your home’s value that you’re borrowing in a mortgage. Your LTV ratio may affect your interest rate, how much you can borrow and your monthly payment.

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

Loan type Why you should choose it
30-year fixed You want the lowest fixed-rate payment possible
15-year fixed You want to pay your loan off faster at a lower interest rate
Conventional You want to make a 3% down payment and have a credit score of at least 620
FHA You have a credit score of 580 and can make a 3.5% down payment
You have a credit score of 500 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 don’t want to pay 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

A quick guide to loan types

  • 30-year fixed-rate loans allow you to pay a loan over a 30-year payment schedule
  • 15-year fixed-rate loans allow you to pay a loan off in 15 years
  • Conventional loans follow guidelines set by government-sponsored enterprises Fannie Mae and Freddie Mac.
  • FHA loans are insured by the Federal Housing Administration.
  • VA loans are guaranteed by the U.S. Department of Veterans Affairs.
  • USDA loans are backed by the U.S. Department of Agriculture to finance homes in USDA-eligible rural areas

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

When you apply for a home loan, you’re committing to one of the biggest debts you’re likely to take on in your lifetime. These tips may keep you from applying for more loan than your budget can afford and can help you consider the costs of homeownership beyond your monthly payment.

Decide on your “payment comfort level.” Just because lenders allow you to borrow up to 43% of your total income (or higher, in some cases) doesn’t mean you should spend that much. Lenders don’t evaluate your lifestyle or daily personal expenses, so when you pick a monthly payment, make sure you leave room for:

  • Health care expenses
  • Childcare costs
  • Education goals
  • Utilities
  • Groceries
  • Savings goals


Add homeownership costs to your budget. A broken water heater, landscape spruce-ups and regular maintenance are all on your dime as a homeowner. According to HomeAdvisor’s 2020 State of Home Spending report, homeowners spent $3,192 on home maintenance. Insurance companies suggest you budget 1% of your sales price or $1 per square foot toward these expenses to cushion the blow of 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 rate comparison tool 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 who have 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 receiving your 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 application. Face-to-face meetings may be less likely in the post-COVID-19 mortgage world, but depending on your state’s guidelines, they may still be possible. 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.

Changes to the 2021 loan application 

There are four big changes on the new, nine-section uniform residential mortgage application lenders are required to use as of March 1, 2021. They include:

  1. A gifts and grants section to list who the gift is coming from and how it’s getting to you.
  2. A piggyback financing section if you’re taking out a first and second mortgage combination like an 80-10-10 loan.
  3. A rental income section if you’re using rent income to qualify for the home you’re buying.
  4. A section just for military borrowers that asks for details about your military service.

The mortgage process after you apply for a home loan in 2021

Mortgage lenders made changes to the mortgage process in 2020 to help stop the spread of COVID-19. Here’s a list of action items you’ll need to handle after you’re preapproved for a mortgage.

Find a home 

After you’ve been preapproved, you’ll know exactly how much house you can afford. House hunting is being handled differently since the pandemic: The National Association of Realtors (NAR) encourages agents to limit the number of in-person visits, so you may first take a virtual tour to check homes off of your list. 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 counteroffer, reject your offer or accept it. With housing demand expected to be strong throughout 2021, expect more competition at higher prices.

Lock in your rate

Once your offer is accepted, you’ll finalize your loan terms. Rates are still at historic lows, but are expected to gradually rise throughout the year. Get a mortgage rate lock to protect yourself against any upticks.

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. However, you may get an appraisal waiver or, in the case of states still affected by COVID restrictions, an appraisal of just the outside of the home may be acceptable.

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. Exceptions such as email employment verifications are still in place for some lenders. Self-employed borrowers can expect extra requirements for proof the business is operating and earning income.

Review the final figures

A closing disclosure is issued three business days before closing. Compare the final numbers to your 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. However, most lenders are offering eClosings, which means you’ll sign with a notary, virtually over a computer or a combination of the two. Once you sign final paperwork and provide your closing funds, you’ll get your keys. Congrats!


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