Applying for a mortgage in 6 steps: Here's what you need to know

Step 1: Assess your financial situation

Before you begin your research, a good first step is to look at your finances and recognize how taking out a mortgage will impact your budget.

Check your credit score

Your credit score reflects how reliable you are at managing borrowed money. Lenders use it to help determine your eligibility for specific mortgage types, rates, and terms. It’s calculated based on factors like your payment history, total debt, and credit utilization.

Scores range from 300 to 850, where higher scores improve your chances of obtaining favorable terms:

• 620 is a common minimum to qualify for a conventional mortgage
• 680+ is generally preferred by most lenders
• 740+ usually qualifies you for the best available mortgage rates

If your score is on the low side, the good news is that it isn’t set in stone. With some effort, you can improve your credit score by making bill payments on time and keeping credit card balances low, for example.

Calculate your debt-to-income ratio

Another factor lenders look at when you apply for a mortgage is your debt-to-income ratio (DTI). This is the percentage of your monthly income (before taxes) that goes toward paying monthly debts such as car loans, business loans, or credit card balances.

For example, if your gross monthly income is $4,000 and your monthly debt payments (e.g., credit cards, insurance, etc.) are $1,000, your DTI would be 25% ($1,000 /divided by​ $4,000 xmultiplied by​ 100%). As a general rule of thumb, the lower your ratio, the stronger your position in qualifying for a mortgage.

Understand the costs of homeownership

Your home’s purchase price is only part of the picture. All the expenses that come with homeownership need to be factored into your planning so that you’re fully prepared for the short- and long-term impact on your finances. Costs often include, but aren’t limited to:

• Down payment
• Closing costs
• Monthly mortgage payments
• Property taxes
• Homeowners insurance
• Utilities
• Maintenance
• HOA fees

Use a mortgage calculator

To get an idea of how much home you can afford, you can try out an online mortgage calculator. These free tools can help you estimate the monthly payments you’ll face based on key factors such as down payment amount, purchase price, interest rates, and term lengths. It can be beneficial to test out different scenarios to give you a better understanding of how mortgages work and what you might be eligible for.

Tips to set yourself up for success

The following best practices can help make your mortgage application process as smooth as possible:

• Keep your income stable, as lenders value consistency
• Pay down existing debt on credit cards or other loans to lower your DTI ratio
• Start saving for closing costs and other fees early
• Get your personal documents in order: recent pay stubs, W-2 forms, tax returns, and bank statements
• Budget for a pre-purchase inspection to proactively identify issues

Step 2: Start saving as early as possible

One of the most beneficial things you can do leading up to your mortgage application is setting some money aside. The more you save in advance, the better prepared you'll be to cover all the expenses that come with homeownership.

Save for a down payment

The biggest upfront expense you’ll have to pay when it comes to your mortgage is the down payment, which is also a key factor in determining how much home you can afford. It directly affects how much you can borrow, what rates you qualify for, and whether you’ll need mortgage insurance. 

Most lenders typically require a down payment of 20% or more of the purchase price to approve a standard mortgage (without additional insurance). Here’s what that looks like across a few different home prices:

To build your down payment faster, you can consider setting up automated savings, exploring secondary income streams, or looking into down payment assistance (DPA) programs in your area. Don’t forget, you’ll also need to set aside additional funds for closing costs when you finalize your purchase.

Step 3: Decide between mortgage types

Another important piece of the mortgage puzzle is deciding between a fixed or adjustable (variable) interest rate.

A fixed-rate mortgage locks in your interest rate for the entirety of your term, meaning your principal and interest payments stay the same throughout the life of the loan.

An adjustable-rate mortgage starts with a fixed interest rate for a set period, then changes at regular intervals based on market rates. It’s calculated based on a benchmark interest rate, such as the Secured Overnight Financing Rate (SOFR) or Treasury yields, plus a fixed margin set by your lenders. Rates often start lower than fixed options, but payments can increase significantly if the benchmark rises after the initial fixed period.

Both have their pros and cons:

Other types of mortgage loans and programs

In addition to fixed- and adjustable-rate mortgages, some lenders also offer specialty mortgage programs. These include:

• Jumbo mortgages: For larger loan amounts
• Low down payment assistance programs: Available on certain conventional mortgages for eligible borrowers who cannot meet the standard 20% down payment; availability and terms vary by borrower and property location
• Federal Housing Administration (FHA) loans: Designed to support low-to-moderate-income and first-time buyers
• Veterans Affairs (VA) loans: Available to eligible U.S. veterans and active service members, often with no down payment required

It’s also worth noting that mortgages differ in how much flexibility they offer when it comes to early repayment. Some mortgages allow extra payments or early payoff without penalties, while others limit prepayment in exchange for lower interest rates. Ultimately, the right choice depends on how much flexibility you need.

Step 4: Research and compare mortgage lenders

With so many mortgage types and lenders to choose from, it’s crucial to do some research and shop around before you make a commitment. No two lenders are the same, so it helps to compare your options to secure the mortgage that best suits your goals and lifestyle. 

When comparing lenders, consider:

• Interest rates
• Term lengths
• Fees
• Rate locks (how long your interest rate is guaranteed until funding)
• Prepayment options
• Customer support
• Any special offers or discounts available with your bank

Step 5: Get pre-qualified or pre-approved

Once you’ve found a lender that meets your needs, one optional step that can help you strengthen your offer is to get pre-qualified and/or pre-approved for a mortgage. 

Pre-qualification involves getting a quick estimate of how much you might be able to borrow. Lenders typically ask for basic financial information, may run a soft credit check, and provide a general price for homes you can afford.

Pre-approval goes a step further by reviewing your finances and credit history in depth to determine a more precise estimated maximum loan amount. Once pre-approved, you’ll receive a written letter showing your maximum loan amount, subject to conditions.

Step 6: Complete your mortgage application

Once you’ve evaluated all your options and found a lender you can trust with terms that fit your goals, you’re ready to submit a formal mortgage application. Your lender will review your financial situation in detail and provide a loan estimate that outlines:

• The loan amount and interest rate
• Your payment schedule
• Estimated closing costs and fees

If you’ve already made an offer on a house, your lender may also require a home appraisal to confirm its market value before finalizing your loan amount. After that, your file moves to a mortgage underwriter who reviews your financial profile to confirm that the loan meets the lender’s criteria.

Once your application has been approved, there are a few things left to do. At this stage you should be receiving and signing your final mortgage documents. Make sure that:

• All documentation has been submitted
• Your home meets all inspection requirements
• You have homeowners’ insurance and have provided proof to your lender

This final step is known as a “closing.” From here, your lender releases the funds to the seller (typically through a closing agent or escrow company), the deed is recorded, ownership officially transfers to you, and your mortgage begins! 

Overall, a mortgage will affect your finances for decades to come. As one of the largest financial commitments you’ll ever make, you’ll want to get everything in order as efficiently and thoroughly as possible. To help get you started, consider getting in touch with a mortgage specialist, who can make the whole process easier. Best of luck!