Buying a home is exciting. It can also be stressful. The mortgage application process can be an intimidating experience. You’ll share information about your financial situation, including financial information like pay stubs, credit reports, and monthly debt payments.  

One of the most helpful tools in the loan application process: organization. In this guide, we’ll help you get ahead of the paperwork, feel more comfortable about the information you’ll be expected to share, and get you excited to find a place to call home. 

The Mortgage Application Timeline 

1. Pre-Approval 

The first step in the mortgage application process is pre-approval. Mortgage pre-approval is an estimate from a lender of how much they may be willing to lend you to buy a home, if certain conditions are met.  

Pre-approval serves a number of important purposes for potential homebuyers:

• It provides a good estimate of the size of a home loan you may be approved for, which helps in budgeting and searching for a home.
• If you have any issues with credit history, you’ll discover them now.
• It will make an eventual offer for a home look more serious and attractive to sellers. 

Pre-approval often requires only a few minutes of a borrower’s time. You can file for pre-approval with a loan officer over the phone or online. You will need to share some financial information, like a social security number and proof of income, but not as much information as a full application will require later. 

Once pre-approved, borrowers can proceed with a more accurate picture of the home they can afford and keep the process moving forward. 

2. Gather documents and find a home 

House hunting also happens to be the perfect time to hunt down the documents you’ll need to buy a home. Not only will you be ahead of the game when it comes time to provide those documents to a lender, but it’s also a great opportunity to review your finances and hone your budget. 

When it comes to the information needed to apply, here are some key documents to track down: 

• Tax returns (Form 1040, Form 1120, Schedule K-1): Underwriters typically ask for 1-2 years of tax returns to provide a full picture of a borrower’s finances. Self-employed or 1099 independent contractors may be asked to provide more to verify the stability of their income. 
• Proof of income (W-2s, direct deposit receipts, pay stubs, employment verification letters): W-2s, direct deposit receipts and other proof of income will give lenders insight into your current earnings power. If you receive income from spousal or child support, social security, investments, real estate, or other means, it’s helpful to track down receipts of those transactions too. 
• Bank statements, or other cash reserves (Savings or checking accounts, certificates of deposit, life insurance): Lenders look to know that borrowers have a “cushion” of cash to continue to pay their mortgage in the event of an employment disruption. They may also be on the lookout for any unexplained cash deposits or unreported debts that could impact your ability to pay. 
• Social security number and ID for credit checks (driver’s license): Mortgage lenders want to confirm your identity and will eventually make a hard inquiry from credit reporting agencies. Government-backed lending programs, like VA and FHA loans, typically have the most forgiving lending standards when it comes to credit scores. 

Borrowers can obtain an FHA loan with a credit score of just 500, although you’ll need a more substantial down payment. The government does not set a minimum score for VA loans, but lenders will set their own minimum scores. 

• Renting history: You may be asked for proof of past rent payments, sometimes as much as one year, to show your ability to consistently pay. This can be accomplished with proof of payment from rent checks or a letter from your landlord. Some rental companies even provide services now that report your renting history to credit agencies.  
• Gift letters: If you received a financial gift from family to buy a home or assist with a down payment, you’ll want to provide lenders with a gift letter. A gift letter informs the lender who the gift is from, the amount, and indicates the provider does not expect repayment.  

With this documentation in hand, you’ll be ready for the final steps ahead.  

3. Complete mortgage application 

At this stage, you’ve found a home and you’re ready to put in an offer. It’s finally time to prepare a mortgage application. The first step is to apply for a Loan Estimate. This is an official document a lender provides giving you critical information to evaluate a mortgage. You are not required to submit any documents at this stage, but to prepare an accurate estimate a lender will need the following information: 

• Name 
• Social security number 
• Self-reported income 
• Address of the home to be purchased (or refinanced) 
• Estimate of the home value 
• The loan amount you are seeking 

The next step will be choosing a lender and filling out the Uniform Residential Loan Application (Form 1003 or Form 65), or something similar. The form comes from the country’s two government-sponsored lending organizations, Fannie Mae and Freddie Mac. Most lenders use these forms, or something similar, so that the information conforms to government standards. 

A loan officer will help you complete the form accurately. The current form has nine sections: 

• Section One: Borrower Information - Information regarding your Identity, employment, and income. 
• Section Two: Financial Information Assets and Liabilities - List out your savings and investments as well as debts and liabilities.  
• Section Three: Financial Information Real Estate - Information on properties you currently own and what is owed against them. 
• Section Four: Loan and Property Information - This is a description of the property you are seeking to buy and the amount you are seeking for a mortgage. 
• Section Five: Declarations - Here you’ll answer questions about the property, including whether it’s your primary residence, your funding, and your past financial history. 
• Section Six: Acknowledgements and Agreements - This section authorizes a lender to perform a credit check and to review the information you have provided. 
• Section Seven: Military Service - Information about military service done by you or a spouse. 
• Section Eight: Demographic Information - Optional questions about your racial and ethnic make up. 
• Section Nine: Loan Originator Information - This is information specific to the lender. 

Once your application is complete the loan will be reviewed by an underwriter who will make sure the details meet the lender’s criteria. You may be asked to clarify certain elements of the application or provide additional documents. When reviewing loan applications, underwriters pay attention to a few key factors. Here are some of those and how they may impact your loan application:

• Credit score: Higher credit scores improve your chances of approval and will help you secure the best terms for a mortgage including the interest rate. Credit scores over 740 are generally viewed as commanding the best rates and terms. 
• Debt-to-income ratio (DTI): DTI is one of the most important factors assessed by underwriters. DTI is a ratio of all your regular debt obligations divided by gross income. This ratio helps lenders assess your ability to take on the debt to apply to a mortgage. DTI will include debt like housing costs, auto loans, credit cards, student loans and other personal loans. It does not typically include expenses like utilities. Most lenders look for a DTI ratio in the low-to-mid 30s. Higher DTIs could put you at risk for not being approved for a mortgage loan. 
• Employment history: A long, stable history of employment and income is viewed as a huge positive by lenders. 
• Down payment size: Lenders view larger down payments, and corresponding greater shares of equity in the home, as positive signs. Large down payments can be another way to secure more beneficial rates and terms. 
• Appraisal: Certain types of properties can be viewed as riskier than others. Homes that need a lot of necessary repairs to be livable are one example. 

4. Closing

Closing on a house is the last step in the mortgage process. By this time, you will have selected a lender and will have finalized the mortgage application process. The loan has gone through and been approved by underwriting.  

The last step will be receiving a commitment letter from your lender indicating your final loan terms which you sign and return to your lender. Lenders will then provide a closing disclosure which will review all terms of the loan. The disclosure will contain final details about your mortgage loan, including the loan amount, projected monthly payment, terms, and closing costs. 

Be sure to review your closing disclosure and compare it to the loan estimate you received. If you have any questions, seek clarification from the lender prior to closing. 

How long does it take to apply for a mortgage? 

This varies based on a borrower’s preparation, the complexity of their financial situation, and the lender’s capacity. It can take anywhere from a few weeks to a few months. When budgeting your time, you should allow between 30 and 60 days to fully complete the application and underwriting process as you are buying a home. 

Do I need to get pre-approved for a loan? 

You do not, but it could be helpful. Pre-approval can help convince sellers and their agents that you have submitted a serious offer to buy a home. It means you’ve taken the necessary steps to secure financing and gotten preliminary approval from a lender to fund a loan. In competitive real estate markets, it can make a big difference. 

Does a mortgage application impact your credit score? 

Yes. The mortgage application process can generate soft and hard inquiries on credit reports. Credit inquiries can temporarily lower your score a few points. Credit reporting agencies generally count multiple “pulls” of credit as one when conducted over a short-time period. The FICO scoring model, for example, counts all hard inquiries within 45 days as one pull. 

How do I get started applying for a mortgage? 

You can use online calculators to begin to figure out a budget and articles like this one to explore lending options. The best first step though is forming a relationship with a mortgage lender and beginning to explore the process of pre-approval. Beginning this process early is best because it allows you to get more familiar with your budget and the homes you may be able to afford, while also can uncover any financial issues, like a poor credit score, you may need to correct. 

The information provided here is for informational purposes. When interest rates and loan program information are included, it is for illustration purposes only and not a solicitation or quote for services. This is not an advertisement or loan estimate. Current interest rates, loan programs and qualification criteria can change at any time. If you have questions or need assistance, we can be reached using the contact information above.