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The Mortgage Loan Process: A Step-By-Step Guide

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Published on March 29, 2023
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So, you’ve decided you’d like to buy a home. Maybe you tried contacting a real estate agent, and they told you to call back after you’ve been “preapproved.” Immediately, the question arises: “How do I start the process of getting a mortgage loan?”

If you’re buying for the first time, the mortgage loan process can be unfamiliar or feel complicated. You may be wondering, “Is my credit score high enough to qualify for a loan? How long does it take? Where do I start?”

We’ll walk you through every step so you can confidently navigate the mortgage loan process.

9 Steps To Getting A Mortgage

Let’s take a look at each step you can expect to take during the mortgage application process.

1. Get Preapproved

The first step we recommend any home buyer take is to get a mortgage preapproval. The idea behind a preapproval is simple. Before you check out what’s on the market, you should be confident that you know how much a mortgage lender is willing to let you borrow to purchase a home.

As you may have already experienced, without a preapproval, real estate agents won’t give you as much of their valuable time (especially in a seller’s market). They work on commission, and they might not take you seriously – and neither will sellers – until you can show them a preapproval letter or a Verified Approval Letter. For more in-depth information, read about our Verified Approval process here.

When you’re preapproved, a mortgage lender pulls your credit. This gives your lender access to two things: your credit score and a look at the data on your credit report.

You need a credit score of 580 to qualify for an FHA loan through the Federal Housing Administration and a score of 620 to qualify for a conventional loan through Fannie Mae or Freddie Mac. A VA loan, which is backed by the Department of Veterans Affairs, doesn’t require a specific score, but lenders can set their own credit score guidelines. At Rocket Mortgage®, we look for a credit score of at least 580 for VA loans.

In addition to your credit score, lenders will see how much debt you’re carrying and whether you’re trying to buy a house with any bankruptcies or collections on your record. Even if you have negative items on your report, it’s still possible to get a mortgage, but you may only qualify for certain loan options.

The lender will also ask about your income and assets upfront to calculate how much you can afford based on your debt-to-income ratio (DTI).

You’ll be matched with a preliminary loan program, although this could change later in the process.

2. Prepare Your Documents

Most lenders require documentation regarding your debts and assets, credit history and proof of employment and income. Keep in mind that you won’t need all this documentation to get your loan preapproved. However, the more information you can give your lender upfront, the stronger your preapproval will be because you and the seller will feel more confident that your loan will likely be approved.

Let’s break down the documents you should prepare for your mortgage application.

To verify your debts and assets, you’ll need:

  • Bank account statements
  • Recent statements from your investment portfolio, including retirement, stock and bond accounts
  • Receipt of gifted funds and a gift letter
  • Documentation of your current mortgage
  • Verification of other outstanding debts, such as auto loans or student loans

When validating your credit history, your loan provider may request the following:

  • Permission to access and review your credit report
  • An explanation for any financial mishaps that might appear on your credit report, including bankruptcies, foreclosures or delinquencies

Finally, proving your employment and income will require:

  • The name, address and contact information of your current employer
  • 2 years of W-2s
  • Profit and loss statements if you’re self-employed
  • Proof of child support, alimony or other income
  • 1040 tax forms

Income and asset documentation can be provided later at the underwriting stage, but submitting it upfront will likely give you a better understanding of how much home you can afford to purchase.

3. Determine Your Budget

Your preapproval letter will tell you how much money a lender is willing to let you borrow. However, just because you can borrow a certain amount doesn’t mean you have to push your budget to the limit. You can enter various purchase prices into a mortgage calculator to determine a realistic estimate of a monthly mortgage payment. You can also add the cost of taxes and insurance if you know what they’re likely to be.

You want to make sure you have enough money every month for savings, emergencies, investments and other expenses. And don’t forget to leave a little bit of room for personal enjoyment as well!

4. Start House Hunting

Going out and looking at homes is usually the most exciting part of the mortgage process. You get to imagine what your life would be like in every house you walk through. Even though this is often one of the more enjoyable stages of the process, you should start with a solid game plan.

Depending on your budget, it may or may not be possible to find a home with every feature you want. With that in mind, it’s best to make a list of your top priorities for the homes you’re looking at to make sure you’re saving time during your house hunt.

Once you have your wish list in place, we recommend hiring a real estate agent. They know the market and can help you find the right home in your price range. They see a ton of homes every year and can work with you to find something that meets your needs and is within your budget. Our friends at Rocket Homesâ„  can help match you with an agent who will work with you to find a house that matches your needs.

5. Make An Offer

Let’s say you’ve found the perfect house. Now it’s time to make an offer. There are several things to think about here. You’ll work with your real estate agent or attorney to write the purchase agreement, which includes your purchase price offer and a list of anything from the house you want to be included in the sale.

Although these types of details are negotiable, sellers typically prefer an agreement with very few strings attached – one that’s as clean as possible. This may mean avoiding asking for seller concessions or for furniture to be included in the deal.

At this stage, you’ll make an earnest money deposit. This is a percentage of the purchase price given to the seller when the offer is accepted to show that you’re serious about the property.

6. Finalize The Loan

After you’ve entered into a legal commitment via your purchase agreement, you’re ready to apply for your mortgage and finalize the terms of the loan. If you haven’t already, you’ll need to consider the types of mortgages you qualify for, compare their respective rates, settle on a down payment amount and choose a loan term length.

Next comes the paperwork. Although you may have already completed a good portion of your application paperwork during preapproval, you’ll need to gather some final documentation before you’re cleared to close. Loan officers will need any information on your debts, assets, credit and income that you haven’t provided yet.

Once you’ve finished your application, your lender will provide you with a Loan Estimate. Receiving this document doesn’t mean your loan has been approved, but it will lay out the details of your mortgage arrangement, such as the total loan amount and the estimated value of the property you want to buy.

7. Wait For Underwriting

Once your offer is accepted, the purchase agreement is sent back to your lender. Your lender will review your options to make sure you’re in the right loan program. Once that happens, your loan goes through mortgage underwriting.

During the underwriting process, an underwriter will verify your income, assets and employment status and compare everything to the information on your credit report to verify that your DTI ratio remains the same. Lenders always pull a potential borrower’s credit at the beginning of the process, but a preapproval lasts for just 90 days.

If you’ve been house hunting for a while, the lender may need to pull your credit again. Try not to take on additional debt during the home buying process. Doing so while trying to buy a house at the same time could put your financing in jeopardy.

Before you close on the house, you and your lender will typically decide whether to lock your interest rate. Because mortgage rates can fluctuate several times a day, a mortgage rate lock ensures your interest rate stays the same until your closing date, or 30 – 60 days after the lock goes into effect.

During this time, your lender may ask for updated or additional documentation if they need it for approval purposes.

8. Get A Home Appraisal

Your lender will set up a home appraisal while you’re going through the underwriting process. The appraisal protects you and the lender by verifying the home is worth the price you’ve agreed on with the seller.

During the appraisal process, the home is evaluated against comparable properties in the area. For example, if the property you’re buying is a two-bedroom ranch with a recently renovated primary bath, the appraiser will look for properties in the area that are as similar to the property as possible, look at the sales data and estimate a dollar value for the home.

If the appraisal comes in lower than your offer, there are three options: the seller can lower the asking price to the appraisal value; you can cover the difference between the appraisal value and the asking price at closing; or you can walk away from the deal if you have an appraisal clause in your purchase agreement.

9. Prepare To Close

When the underwriting process is complete, it’s time for the final step – closing on your new home. On closing day, you should bring photo IDs, a copy of your Closing Disclosure, your down payment and any other closing costs. You’ll sign the mortgage, take possession of the deed and receive copies of your closing documentation.

You can expect to pay about 3% – 6% of the total mortgage amount in closing costs. Your closing costs can include appraisal fees, discount points, loan origination fees, inspection fees and more. Closing costs can make up a large part of your upfront cost on a mortgage loan, so make sure to account for them during your financial planning.

How Long Does The Mortgage Loan Process Timeline Take?

Now that you know how the process works, what is the timeline for buying a house? It’s different for everyone, but let’s try to give you a rough idea.

Mortgage Preapproval: 1 – 2 Days

You can be preapproved through Rocket Mortgage, also called initially approved, by sharing your income and asset documentation from your bank. Even if you get started over the phone, most people can expect to be preapproved within a day or two.

Mortgage Loan Closing: 30 – 60 Days

Once you have your purchase agreement and underwriting starts, we try to close your loan as soon as possible.

Besides looking for the home, the second longest delay in the process can be getting an appraisal scheduled. There are parts of the country where there’s a shortage of appraisers. If you’re buying in one of these areas, it’s important that you and the seller have realistic expectations.

You can really help speed up the mortgage process by getting all your documentation turned in on time. This is one of the elements of the mortgage process you can directly control. So make sure to stay organized and provide any documents as quickly as possible.

The Bottom Line: Demystifying The Home Loan Application Process Is Your First Step Toward A New Home

Once you’ve made it all the way through to your closing day, you’ll be rewarded for your efforts with a new home and the official status of homeownership. Getting across the finish line can feel like a long, complicated process. But mortgage applicants who are familiar with each step along the way are best positioned to make their application go as smoothly as possible.

Now that you understand the process, are you ready to get started? You can go ahead and get started with an online preapproval or call one of our friendly Home Loan Experts at (888) 452-0335.

Kevin

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage, he freelanced for various newspapers in the Metro Detroit area.