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How to get a mortgage in 2024: From prepping finances to closing

Yahoo Personal Finance· Getty Images
Hal Bundrick
10 min read

If you're getting ready to buy a house — whether it’s one month or one year down the road — it's never too early to start laying the groundwork. This is particularly true if you’re using a mortgage loan. Not only can prepping early help ensure easy mortgage approval when the time comes, but it can help you understand how much house you can afford, too — guiding you to the proper price range as you start your home search.

Are you planning to use a loan to buy your house? Here’s how to get a mortgage — and get the best rate when you do.

Read more: The best first-time home buyer mortgages

The mortgage application process can feel complicated, especially if you’re a first-time home buyer. Fortunately, being prepared can help this process go more smoothly.

Here’s the step-by-step process you can expect when you get a mortgage:

  1. Enhance your creditworthiness. Your credit will determine what loan programs you can qualify for and influence your mortgage terms and interest rate too.

  2. Understand your mortgage options. There are many loan programs you can choose from. Speaking to a mortgage professional can help you choose the best one.

  3. Select potential mortgage lenders. Loan options, fees, and rates vary from one lender to the next, so you’ll want to compare a few different companies.

  4. Prequalification first, then preapproval. Prequalification can give you an idea of what you might qualify for, while preapproval is a more official estimate.

  5. Find the right house at the right price. Use your mortgage preapproval to determine the best price range to shop in. Once you find a house you like, make an offer and include your preapproval letter.

  6. Select a loan offer and apply. Apply to several lenders for a mortgage and determine which offer is the best.

  7. Gather the documents you’ll need to get a mortgage. You’ll need to submit a whole host of financial documents before getting approved for a mortgage loan.

If you have questions throughout the home-buying process, lean on your real estate agent and loan officer. They’re there to help.

Mortgage lenders look at your credit history and credit score when evaluating your application. These can give the lender insight into your credit habits and how likely you are to make your monthly payments. They’ll then use this assessment, at least in part, to set your loan terms, interest rate, and loan amount.

Generally speaking, a higher credit score will enhance your chances of mortgage approval, lower your interest rate, and make your payment more manageable.

You’ll also need to meet minimum credit score requirements to qualify for a mortgage in the first place, though the exact number will depend on your loan program and lender. For conventional loans, you can expect to need at least a 620 credit score.

To see where you stand credit-wise, pull your credit report from all three credit bureaus: TransUnion, Equifax, and Experian. Then, review your credit history, dispute any errors you find, and work to pay down credit card and other monthly debts you have. All of these strategies can improve your credit score and chances of mortgage approval.

Read more: Getting a mortgage with good (but not great) credit

There are many types of mortgage loans. It's not your job to know them all, but understanding the basics can help you choose the best path forward.

When preparing to get a mortgage, you should think about::

  • Fixed-rate mortgages vs. adjustable-rate mortgages. Fixed-rate loans have interest rates that remain the same for your entire loan term. Adjustable-rate loans have rates that change over time. They often have lower interest rates for the first few years of the loan.

  • The term of the loan you might want. Though most homebuyers choose a 30- or 15-year mortgage, there are many other loan terms to choose from. Consider how long you plan to stay in the home and how quickly you want to build equity.

  • Possible loan programs. There are many loan programs to choose from. Federal government-backed loans like FHA loans, USDA loans (guaranteed by the U.S. Department of Agriculture), and VA loans can often be easier to qualify for and require lower down payments — or sometimes no down payment at all. Jumbo loans are a type of conventional loan, specifically for higher-priced properties. Conforming loans are another type of conventional mortgage. These have requirements set by Fannie Mae and Freddie Mac and require down payments of just 3%.

Your mortgage lender or loan officer can help walk you through your options, as well as the fees and costs of each.

Dig deeper: How to get a 3% down mortgage

To get the most favorable rates and terms, you need to shop around for your mortgage. Because the truth is, if you are a qualified, creditworthy buyer with a steady income, mortgage lenders will compete for your business.

To start, talk to the bank that has your checking, savings, or retirement accounts, as they may offer discounts for existing customers. You should also consider a local credit union, a few online lenders, and any lenders recommended to you by a friend or family member you trust.

Compare each lender on their loan programs, qualifying requirements, and costs (you’ll see these on the loan estimate form they will give you). Be sure to check reviews of each lender and make sure there are no recent regulatory issues noted in the NMLS database too. These can give you insight into the lender’s business practices and reveal companies you may want to skip.

If you want to simplify the process, you can reach out to a mortgage broker. They can help you shop around and compare home loans from different lenders.

Read more: Best mortgage lenders for first-time home buyers

To get a good read on where your home buying power stands, ask a lender for a mortgage prequalification. A prequal is a lender's initial impression of your creditworthiness and eligibility for a mortgage. You'll get an early look at what you might be able to afford, how much your monthly payment might be, and your chances at qualifying for the loan — but this is all an educated guess, at best.

Before seriously house hunting, you'll want a full-fledged mortgage preapproval. The lender will pull your full credit report, and you'll have a better idea of what kind of interest rate and loan limits you'll qualify for. However, it's not a final decision. You'll get that when you have a seller accept your offer on a house, you submit a full application, and the lender begins the underwriting process.

You only need one mortgage preapproval before shopping for a house. So, remember those lenders that you want competing for your business? Pick one that gave you an early prequalification and ask for a preapproval so you can begin house hunting.

Read more: Is it a good time to buy a house?

It's easy to fall into a mindset that a lender is doing a favor by making you a loan offer. Look, they're in business. They need to make loans. If you are a qualified, creditworthy buyer with a steady income, lenders will compete for your application.

And that's exactly what you want them to do.

For that to happen, you've got to get in front of several worthy contenders. That could mean talking to the bank that has your checking account, the credit union down the street, and a couple of online lenders. Throw in a lender a friend or family member recommended.

Read more: Is it a good time to buy a house?

Now you're ready to find that house. A good real estate agent can guide you through the house hunting process, especially when it comes to making an offer. They can pull comparable sales in the neighborhood to make sure the purchase price you’re offering is fair to the buyer and on par with other sales in the area.

No matter how much you like a home, resist the temptation to buy above your budget. Home improvements can always come later once you're comfortable with your new monthly payment and the assorted added expenses that come with homeownership — property taxes, HOA dues, maintenance, insurance, and more. (A nice bonus: Those improvements will also increase your home’s value and give you more home equity!)

Read more: How much money do I need to buy a house?

When the seller accepts your written offer, you may be tempted to go back to the lender who gave you the preapproval and close the deal. But you want the best mortgage you can qualify for, and that means other lenders need to bid for your loan too.

Make an official application with two or three of your lender finalists. Ask for a loan estimate with the same loan term, amount of money, and down payment each time, and be sure the quote includes zero discount points. It will make the math much easier to compare each lender's offer. (Discount points — also called mortgage points — allow you to pay an up-front fee for a lower interest rate. Many lenders automatically include these when quoting a loan to make their rates seem more competitive.)

The lenders will issue loan offers with a mortgage rate, an estimate of your monthly mortgage payment, and the total interest you'll pay over the life of the loan. Keep in mind that the homeowners insurance policy you choose will also impact this payment, so shop around for this as well.

Read more: 5 strategies to get the lowest mortgage rates in 2024

Much of the mortgage loan application process is a paper chase, as the lender will need to assess your financial information and history in great detail. Some of the documents you'll need to gather include:

  • Identification docs, such as driver's license and Social Security number.

  • Employment history and proof of income for the past two years — things like W-2s, 1099s, and recent pay stubs.

  • Bank statements for your financial accounts, including checking, savings, retirement accounts, and investments.

  • Personal and business federal tax returns.

  • Legal documents related to alimony or child support.

  • If you're self-employed, you'll need to provide profit and loss statements.

  • Paperwork about any financial gifts you've received.

  • Copy of the signed purchase agreement for the house you're buying.

You will also need to agree to a credit check. This will allow the lender to gauge your debt-to-income ratio (DTI), which plays a big role in how much you can borrow.

Read more: How long does it take to buy a house?

It will take a few weeks for the loan to go through the lender's underwriting process. In fact, according to ICE Mortgage Technology, the average loan takes 42 days from offer to closing. FHA loans may take slightly longer.

Learn more: Will applying for a new credit card hurt my mortgage application?

Your loan can also get delayed (or even canceled entirely) if you don’t have your documentation ready or if there are changes to your credit between your preapproval and closing day. For this reason, it’s important to keep your spending in check after submitting your offer, and avoid opening any new accounts. (So hold off on buying that new furniture until after you’ve signed your paperwork!)