How to Get a Mortgage in 2024

Vault’s Viewpoint

• Before you start the preapproval process, make sure your credit is in good shape.
• Shopping around and comparing lender offers will help you score the best terms. 
• Don’t forget to factor in closing costs.

Steps for Getting a Mortgage

Getting a mortgage and closing on your home can be a long, arduous task. You’ll need to have money saved for your down payment and closing costs and be prepared to invest time in researching the best options and collecting all the required documentation. 

Knowing what’s ahead and preparing can make the process easier and ensure you find the best loan for you. Follow these steps to get a mortgage: 

1. Set your budget and start saving.  
2. Get your credit in good shape. 
3. Compare different mortgage types. 
4. Research lenders for your preferred loan. 
5. Get preapproved for a loan. 
6. Submit your mortgage application. 
7. Be prepared for underwriting. 
8. Close on your home. 

Set Your Budget And Start Saving 

Your home purchase budget will help you determine how much you need to save. A quick way to estimate how much house you can afford is to multiply your gross annual income by three. So if you make $100,000 per year, your maximum purchase price for a home should be $300,000. 

You’ll need to adjust this number based on several other factors, including other debts you already have or may need to take on, the cost of living in your area and how big of a down payment you can afford to put down. Many websites offer mortgage calculators, which can help you get an estimate of your budget based on these factors. 

From there, you can start saving for your home. 

Your down payment will typically run between 3% and 20% of the total home cost, depending on your loan type. While this is a big chunk of the money you’ll need to save, it is not the only cost you should budget for. Closing costs will run you about 2% to 5% of the loan amount. Don’t discount moving expenses either, especially if you are moving far away. 

Check Your Credit

The higher your credit score, the easier it is to qualify for a mortgage. Your credit score also helps determine the interest rates and loan terms. Take time to review your credit score and report to see if there are errors that need to be fixed or if you need time to build your credit score. 

Building good credit takes time, so the earlier you get started, the better. You can start by paying all of your monthly bills on time, maintaining a low credit utilization ratio and avoiding opening too many new accounts. 

As you get closer to the time you are ready to submit your mortgage application, avoid any actions that might ding your score, such as taking out a new loan or credit card. Keep your balances as low as possible as well. 

Compare Different Mortgage Types

Before you can look for a lender, you’ll need to figure out what kind of mortgage you want. There are many types of home loans available, including: 

• Conventional loans. This is the most common type of mortgage and consists of any home loans not backed by the federal government. You’ll likely need a credit score over 620 to qualify and will be required to put down between 3% and 20% of the home cost. Down payments under 20% are subject to private mortgage insurance (PMI) premiums.
• Government-backed loans. These mortgages are insured by the federal government, reducing the risk lenders take on and making them easier to qualify for than many conventional loans. Options include Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans. 
• Jumbo loans. The Federal Housing Finance Agency (FHFA) sets a limit of $766,550 for loans to conform to their standards. If borrowers need more than this amount (higher for select areas), they’ll need to take out a jumbo loan. They typically require higher credit scores and down payments than conventional loans. 
• Fixed-rate mortgages. Mortgages charge interest in one of two ways—fixed or adjustable. Fixed-rate mortgages maintain the same interest rate for the life of the loan, which is typically 15 or 30 years. If you want a lower rate, you’ll have to refinance. 
• Adjustable-rate mortgages. Adjustable-rate mortgages (ARMs) have interest rates that change over the lifetime of the loan, usually on a predetermined schedule. 

Find a Mortgage Lender 

After you know your credit score and the type of loan you plan to apply for, you can research lenders that offer that kind of loan. There are plenty of different lenders available, including banks, credit unions or online non-bank lenders. 

To find the right mortgage lender, start with a search for the kind of loan you want in your area, and compare interest rates and other terms to narrow down a list of lenders you might want to work with. You can also check with friends and family who may have insight into which lenders offer the most affordable mortgage and are the most helpful in navigating the homebuying process.

Get Preapproved for a Loan

Getting preapproved for a mortgage gives you an idea of the mortgage terms you will qualify for and shows home sellers that you are serious about making a purchase. 

To apply for mortgage preapproval, you’ll need to submit many of the same documents needed for a formal mortgage application, including proof of income, tax returns and identification. 

Mortgage preapproval can involve a hard inquiry to your credit, but the impact is typically small. You can also shop around with multiple lenders without worrying about damaging your credit. You typically have a 45-day window where multiple credit checks from mortgage lenders count as just one inquiry.

Submit Your Mortgage Application

Once you’ve decided on a home you would like to purchase, it’s time for the official mortgage application. In addition to performing a credit check, your lender will ask for documentation proving your identity, employment, income, assets and documentation of any gifted funds that might be part of your home purchase.

You’ll work with your lender to get terms including your interest rate and expected closing costs. Depending on your lender, you might have the option to buy down your interest rate as well. 

Be Prepared for Underwriting

During the underwriting process, your mortgage lender will dig into the financial documents you’ve provided to make a final decision on extending a home loan. They’ll evaluate your debt-to-income ratio, funding sources and credit history to ensure you can pay back what you borrow. 

At this point, a title company will perform a title search, combing through public records to confirm the legal owner and whether there are any liens on the property. Your lender will also appraise the property you’ve chosen to get an idea of its actual value. This is also a good chance for you to conduct a home inspection and negotiate any repairs or changes to offer terms before you close. 

At the end of the process, your lender will tell you if you’ve been approved for a mortgage. 

Close On Your Home

Once you’ve been approved for a mortgage, you still need to finish a few more steps to close on your new home. You’ll have to sign all the final documents before the home is officially yours. You’ll also need to sign up for homeowner’s insurance and pay closing fees, including your title insurance fees, origination fee and appraisal fee.