How to Apply for a Mortgage in 2022
Applying for a mortgage can seem like an intimidating process. But these days, using online lenders has made things easier than ever before. By following the right steps to apply for a mortgage, you can save time, money, and headache. You can easily see what loans you qualify for and get preapproved within minutes.
5 Steps to Apply for a Mortgage
1. Get to Know Your Credit Score (as Early as Possible)
The first thing you should do when you want to apply for a mortgage is to get familiar with your credit report and credit score. Ideally, you’ll want to start this process as soon as possible – long before you even start to apply. With a better credit score, you can typically qualify for better mortgage rates.
With most lenders, you’ll need a credit score of at least 620 to qualify for a mortgage in the first place. To make sure you’re on track with your credit, here are some tips to keep in mind:
- Check your credit before you apply for a mortgage: The earlier you get to know your credit, the better. This gives you more time to improve your score and correct any issues.
- Pay down as much of your outstanding debt as possible: This will lower your utilization rate, which is the single biggest factor in your credit score. This will also lower your debt-to-income ratio, which mortgage lenders lean on heavily during the approval process.
- Avoid opening new credit accounts for at least 3-6 months: When you’re applying for a mortgage, you want to have as few anomalies in your finances as possible. This includes opening new credit accounts, which insinuates a need to borrow more money and also dings your credit score through a hard inquiry.
With these tips in mind, you can drastically improve your credit score within a few months if you’re consistent and aggressive in paying down open balances. That said, you might not want to have all that outgo of money from your bank accounts, since that will show on the bank statements you need to provide, so it can be a little tough to find the right balance.
The best thing to do would be to start working on improving your credit long before you even start looking for a house and mortgage. This way, you can avoid situations where you might have to pass up on a house that you love just because your credit score isn’t high enough.
If you plan on buying a house in the very near future, I would suggest waiting on aggressively working on improving your credit. But if you have some time to wait, then you can benefit from trying to improve your score in the meantime.
2. Get Preapproval for a Loan for Extra Leverage
Once you know that you’ll be needing a mortgage sometime soon, you should get preapproved as soon as you can. Some homebuyers skip the pre-approval process, but it’s one of the best things you can do!
Getting a preapproval from a mortgage lender will give you an idea of what kind of house you can truly afford. Additionally, having a letter of preapproval from a mortgage lender will give you leverage when you’re comparing it to other offers. You can start an immediate competition between lenders and force their hand to offer you a better rate.
3. Apply for a Mortgage (Using Multiple Lenders)
With your pre-approval letter in hand, it’s time to start applying for a mortgage loan with multiple lenders. The reason you should apply with more than one lender is to get multiple offers to compare and pick the best rate. But more on that later. To get ready for the actual mortgage application, you’ll need to get your paperwork ready.
This is everything you’ll need to apply for a mortgage:
- Name, date of birth, Social Security number
- Tax returns (2 most recent years on file)
- Bank statements (2-4 months minimum)
- Retirement and brokerage accounts (if applicable)
- Monthly debt payments (if applicable)
- Outstanding real estate debt (if applicable)
- Last 12 months’ worth of proof of rental payments (if applicable)
- Divorce proceedings (if applicable)
- Any bankruptcy information (if applicable)
- Down payment source
These days, applying with online mortgage lenders – such as LendingTree, Credible, Quicken Loans, and Better– is so much quicker and easier than going to the bank. Be sure to have scanned copies of the above applicable documents ready.
4. Review Loan Estimates and Select a Lender
Once you’ve gotten multiple mortgage offers (I recommend getting at least 3-4), it’s time to go over them and find the best option. Mortgage rates, while they are typically similar, will vary slightly from lender to lender. A small change in percentage on a loan for hundreds of thousands of dollars or more will make a huge difference over the life of the loan.
While you’re reviewing the different mortgage loan offers, you’ll want to examine them thoroughly and make sure you understand what each offer really entails.
Be sure to pay attention to these details:
- Mortgage amount
- Monthly payment
- Interest rate
- Loan terms
- Type of loan
A mortgage broker can help you go through your offers if there is anything that you don’t understand. If you apply through Quicken Loans, you can talk to a professional Home Loan Expert.
5. Allow the Loan to Process and Close On It
Once you apply for a mortgage loan, the lender will handle most of the work. They will scrutinize your application and likely ask you additional questions that come up. The lender will want to be sure they have the full picture of your financial situation before they offer you a mortgage. This also works to your benefit, because it can help you get the best rates for your individual situation.
If all is well, the lender will underwrite the loan and start preparing all the paperwork to get sent over to you. Once you receive the paperwork, you’ll just need to sign the papers, close on the loan, and move into your new home!
The Best Lenders for Mortgage Loans
Now that you have a better idea of how to apply for a mortgage, I’ll share some of the online lenders I recommend.
LendingTree is an online loan marketplace that works with a network of lenders. All you have to do is fill out a quick application form to see which mortgages you prequalify for. The whole process takes minutes, and you can easily compare multiple mortgage offers so you can choose the best one for your situation.
To get a mortgage through LendingTree, you need a credit score of at least 620, a 3% down payment minimum, and a debt-to-income ratio of 50% or lower (43% recommended).
LendingTree also offers a home affordability calculator, a monthly payment calculator, and other tools to help you determine what kind of mortgage you can afford.
Credible is also an online loan marketplace that will match you with multiple lenders. You can compare different offers and select the mortgage loan with the best rates and terms. In under 5 minutes, you can fill out a quick online form to see how much you should be preapproved for and even get a preapproval letter.
On Credible, you can find both 15-year and 30-year fixed-term mortgages, with rates ranging from 3.000% to 3.071% (30-year) and 2.250 to 2.369% (15-year). These rates assume a nearly ideal borrower, with a credit score of 740 or higher and a 20% down payment. If your credit is lower, expect slightly higher rates for both loan terms.
Rocket Mortgage by Quicken Loans touts itself as America’s largest mortgage lender, claiming to have helped over 2 million Americans buy their home. Unlike the previous two platforms that I’ve walked you through, Quicken Loans is a direct lender.
On the Quicken Loans website, you can find everything you need to apply for a mortgage and see what rates and terms you can get.
You need a credit score of at least 620 to qualify for most loan types, a debt-to-income ratio of 50% or lower, and a down payment of at least 20% (to avoid private mortgage insurance).
Better Mortgage is another fully online service. It’s a direct lender, providing mortgage loans to homebuyers. Better touts itself as having zero commissions, zero lender fees, and the ability to close up to 10 days faster on average than a brick-and-mortar bank.
The online process is very easy. You can get a letter of preapproval in less than 5 minutes, and start hunting for the perfect mortgage. Similar to the other lenders on my list, you’ll need to have a credit score of at least 620, a 20% downpayment to avoid PMI, and the platform recommends a debt-to-income ratio of less than 50%.
The Bottom Line
Applying for a mortgage to buy a home can seem daunting, but if you follow the 5-step guide above, it might be easier than you think.
With online lenders like LendingTree, Credible, Quicken Loans, and Better Mortgage, the process has never been more convenient. You can get preapproved in just minutes and start seeing mortgage offers within the same day.
From there, just choose the best loan option for you, and start packing your things to get ready to move into your new home!