For a successful mortgage approval, you’ll need organized finances, a good credit score and a stable income.
It’s not an easy time to be a prospective first-time homebuyer or any kind of homebuyer for that matter. There’s increased demand and competition in many real estate markets, meaning you’ll really need to perfect your mortgage application if you want to increase your odds of being picked by a seller.
But it’s not like anyone wrote a guide on how to get approved for a mortgage, right?
Actually, that’s exactly what we did. On top of offering mortgage and investment advice to more than one million people, our writers are homeowners who have gone through the same grueling mortgage process you’re about to embark on. Plus, we spoke with Jason Lerner, a 22-year veteran of the mortgage industry and area manager for First Home Mortgage.
Lerner has helped thousands get a mortgage and has seen the market at its best and worst.
“In today’s market, it’s much more challenging to be a consumer than a lender,” he says.
Follow these tips to help you stand out from other prospective buyers.
9 Steps to Get Approved for a Mortgage
Getting approved for a mortgage doesn't have to be a daunting process. In fact, one thing that can make it easier is to get a mortgage pre-approval before you start looking at properties.
The process of getting approved for a mortgage is broken down below.
1. Understand Your Credit
Your credit score is a number that represents your creditworthiness or how likely you are to repay debt. Mortgage lenders use this score to determine whether you're eligible for a loan, how much you can borrow and what interest rate you can get. Knowing your credit score will help you gauge your chances of getting approved for a mortgage.
Credit scores range from 300 to 850, and the higher your score, the better your creditworthiness. A score of 700 or higher is usually considered good, while 800 or higher is excellent. If your score is lower than 700, you may still be eligible for a mortgage, but you may have to pay a higher interest rate. If you're planning to apply for a mortgage, it's a good idea to know your credit score and work on improving it if necessary.
Improving that score starts with getting a copy of your credit report.
Once you have the report, check for errors and inaccuracies. If you find any, dispute them with the bureau that issued the report. Inaccurate information can hurt your credit score and reduce your chances of being approved for a mortgage.
Lerner advises people to work with a trusted financial professional when cleaning up their credit.
“Without the guidance of a trusted professional, you may pay things off that are counterproductive or don’t have that much of an impact on your total score,” he says.
2. Save for the Down Payment
In almost all cases, you'll need a down payment when purchasing a property, typically ranging from 5% to 20% of the total purchase price. Having enough of a down payment will make it easier to obtain mortgage approval and can help you lock in lower interest rates.
Many people will tell you to shoot for a 20% down payment, and while that might be advisable in some cases it’s not always what’s needed. Lerner says that number used to be important because it was the down payment needed to avoid private mortgage insurance (PMI), which was once costly but is now affordable for most qualified borrowers.
“Some of my wealthiest clients choose to put less money down instead of depleting an asset,” Lerner says.
3. Gather Necessary Documents
Without the right documents, lenders are unable to validate your ability to repay your loan, which can lead to you being denied a mortgage approval or a higher interest rate.
Some important documents you'll need to provide include:
- Tax returns
- Bank statements
- Pay stubs
Gathering these documents can take some time, so it's important to start early. Make sure you read the lender's requirements carefully to ensure you provide everything they need. By submitting all the necessary documents, lenders will be able to quickly and accurately assess your financial standing, ultimately leading to a smoother loan application process.
4. Keep Your Finances Consistent
Another important step toward getting approved for a mortgage is maintaining a stable work and income history. Lenders typically prefer applicants who have worked for the same employer for at least two years and have a consistent source of income. This stability shows that the borrower is financially responsible and can make the mortgage payments on time.
5. Choose the Right Mortgage
Many different types of mortgage loans are available, each with varying terms and requirements. It's important to take the time to research and understand the differences to make an informed decision.
One of the first things to consider when choosing a mortgage is the interest rate. This will determine the amount of interest you'll pay on your loan, which can have a significant impact on your overall monthly payment and long-term financial health. You'll also want to evaluate loan terms, such as the length of the loan and whether it has a fixed or adjustable rate. Some loans may also have fees and closing costs that should be taken into account.
6. Shop Around for a Mortgage
Don't settle for the first mortgage offer you receive. It's crucial to compare rates, terms and fees from multiple lenders to ensure you're getting the best deal possible.
When looking for a mortgage, don't limit yourself to traditional brick-and-mortar banks. Check out our list of the best online mortgage lenders.
7. Find a Reputable Mortgage Lender
Look for reputable institutions that offer a range of loan products and have a strong track record of customer service. You can start your search online or ask friends and family for recommendations. Once you have a list of potential lenders, reach out to them and schedule an appointment to discuss your options.
8. Get a Mortgage Preapproval
One of the most important steps to take is to get a mortgage pre-approval. This involves a lender evaluating your creditworthiness and pre-approving you for a specific loan amount with a specific interest rate.
A mortgage pre-approval gives you an edge when shopping for a home, as it shows sellers that you are a serious buyer and have already taken steps to secure financing. It also helps you avoid the disappointment of falling in love with a home, only to find out later that you are not qualified to buy it. Additionally, a mortgage pre-approval can help speed up the mortgage process once you find the perfect home, as the lender has already reviewed your financial documents and credit history.
Keep in mind that a pre-approval is not the same as a mortgage pre-qualification. Pre-qualification is a simpler, less formal process where a lender provides an estimate of how much you may be able to borrow based on the information you provide. A mortgage pre-approval, on the other hand, requires more documentation and a more detailed credit evaluation.
9. Finalizing Your Mortgage and Closing the Deal
Once you have found your dream home and your offer has been accepted, it's time to finalize the deal and the closing process. This step involves completing all legal and financial requirements while also paying the down payment and closing costs. It is important to understand all the terms and conditions of the mortgage and read through all documents carefully before signing. Once all legal documents have been signed, the seller will transfer ownership of the property to you, and you will officially become a homeowner.
How Do I Get Approved for a Mortgage?
The key to a successful mortgage approval is to ensure that your finances are in order, your credit score is in good standing and that you have a reliable source of income. Additionally, it's important to choose a lender that suits your needs and offers competitive rates and terms. To make the process smoother, obtain a mortgage pre-approval before starting your home search.
By following these steps, you can increase your chances of getting approved for a mortgage and achieving your dream of owning a home. Remember to do your research, be honest and transparent throughout the application process and seek the guidance of a qualified mortgage professional if you need assistance.
Why You Should Trust Us
Benzinga has offered investment and mortgage advice to more than one million people. Our experts include financial professionals and homeowners, such as Anthony O’Reilly, the writer of this piece. Anthony is a former journalist who’s won awards for his coverage of the New York City economy. He’s navigated tricky real estate markets in New York, Northern Virginia and North Carolina.
For this story, we worked with Jason Lerner, an area manager for First Home Mortgage and a 22-year mortgage industry veteran.
Frequently Asked Questions
Is it hard to get approved for a mortgage?
Getting approved for a mortgage should be easy as long as you have a good credit score (ideally 640 or higher), a debt-to-income ratio of 43% or lower and enough income or assets to cover the monthly mortgage payments. There may be other factors that could impact your chances of being approved for a home loan.
How much mortgage can I get with a $70,000 salary?
The answer to that question depends on your credit score, other financial assets you might have and how much debt you have. Those making $70,000 per year with a good credit score and minimal debt should qualify for mortgages between $180,000 and $250,000.
What credit score is needed to buy a house?
There are some mortgage types and lenders that allow you to buy a house with a 580 credit score, but most mortgages require a 640 credit score or higher.
Sources
- Jason Lerner, area manager for First Home Mortgage and a 22-year mortgage industry veteran
About Anthony O'Reilly
Anthony O’Reilly is an updates editor for Benzinga. He’s won numerous journalism awards for his coverage of the New York City economy and Long Island school district budgets.
