How to Get a Mortgage

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When buying a home, it’s likely that many of us do not have the full purchase price sitting in our bank account. With prices ranging from $75,000 to $750,000 and more, purchasing a home is a major investment.
When you need a little help pulling together the funds to purchase a home, it’s time to consider a mortgage. This is a legal agreement between yourself and a lender (bank or other creditor). The lender provides you with the money needed to purchase the home in exchange for the title of the home itself. Once you have fully paid off your mortgage loan, the title is transferred over to you.
A lender needs to make money off the transaction, so they will charge interest on the loan, depending on several factors, including (but not limited to):
  • Amount of the loan
  • Down payment paid
  • Length of loan repayment

What you need to get a mortgage

To be approved for a mortgage loan, you will need to have some basic information, including:
  • Monthly income
  • Monthly debt
  • Credit score
  • Available down payment (if any)
  • Budget for home purchase (how much you can afford for a house).

Impact of credit on your mortgage

One of the most impactful factors on whether you will be approved for a mortgage, and what your interest rates will be, is your credit score. Your credit score is recommended to be a minimum of 680, but 700 or higher is better for mortgage approval.
There are three main credit reporting agencies, TransUnion, Equifax, and Experian. It’s recommended to check your score at all agencies to see if there are any issues that one agency may be reporting. The better your credit is, the more likely you are to be approved and the lower your potential interest rates will be on your loan. It is recommended that you do not apply for new lines of credit for three months to up to one year before you apply for a mortgage loan.
It is possible to get a mortgage loan with bad credit, but you will likely be required to pay higher interest rates and may be limited on the lenders you are able to work with.

How to get a mortgage with little or no money down

The second-most important factor in applying for a mortgage is going to be how much money you have to put down on your loan. It is recommended that you have at least a 30% down payment. For example, if the house you would like to buy is 300,000, it is recommended that you have at least $30,000 saved up to put as a down payment on the house and loan.
It is possible to be approved for a mortgage loan with less than 30%, and some banks and financial institutions have special loan programs that can help buyers who are unable to save for a down payment. Some of these offers have stipulations, such as only covering the amount the home was appraised for, meaning you would be responsible for any amount the house cost over the appraised value.
In addition, if you pay 20% down or less, you will likely be required to pay for mortgage insurance, which is designed to protect your lender should you default on the loan, which will add onto your average monthly payments for your home.

How to apply for a mortgage

Once you have all of the paperwork and information you need, and know if you have a good or bad credit score, and how much of a down payment you can afford, it’s time to apply for a mortgage.
To apply for a mortgage, follow these steps:
Step 1: Do your homework. Make sure you have all of your financial statements, proof of income, and credit scores checked before applying for a mortgage.
Step 2: Find a lender. There are many lenders available to finance your mortgage. Resources such as can provide information on national interest rates and mortgage calculators.
Step 3: Get pre-approved. Once you find a lender, you can ask for pre-approval from a lender for a certain amount of money. A pre-approval will show a seller that you are qualified to purchase the house, and many sellers will request a pre-approval letter shortly after receiving your offer.
Step 4: Get the loan. Once you have found a lender and been pre-approved, located your home, and have had your offer accepted, you begin what’s called the “underwriting process,” where your lender will officially approve you for the loan. While rare, if you had ay debt or credit score changes between the time you were pre-approved for your loan and the underwriting process, it is possible for your loan to be denied, even if you were pre-approved.
Step 5: Close the deal. Once you have been approved, you then must “close” on the home. Depending on the home size and location, you will be required to pay between 2% and 5% of the purchase price of your house in closing costs. You may also need to pay for mortgage insurance as noted above. The Consumer Financial Protection Bureau provides a calculator to help determine what your closing costs may be.
Buying a new home is a big step in your life, and you will likely need to apply for a mortgage. While there are several factors that impact loan approvals, from your income and debt to the price of the house and how much money you can put down, understanding the ins-and-outs of the mortgage process helps you be an educated home buyer.

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