Your first step toward getting a home mortgage loan is to determine your budget. Check our mortgage calculator and home affordability calculator to see how much you’ll be able to afford in monthly mortgage payments and get an estimate of your ideal purchase price.
Part of determining how much home you can afford is figuring out your down payment. As a general rule of thumb, a 20% down payment is recommended because you’ll avoid paying for private mortgage insurance (PMI) — a policy that will protect the lender in case you default on the loan. Most lenders, however, will accept a lower down payment.
Before applying for a mortgage, make sure to check your credit score. Lastly, check your debt-to-income ratio before applying. Lenders prefer borrowers with a debt-to-income ratio lower than 36%, and many lenders will not even consider borrowers with a ratio higher than 43%.
It is also important to compare mortgage lenders to make sure you find the one with terms that best fit your financial situation. Once you’ve decided on a lender, gather all the necessary paperwork to help streamline the application process.
Documents needed when submitting a mortgage application include:
- Your two most recent pay stubs
- Your most recent tax return
- W-2 and/or 1099 (lenders may ask for two years, depending on your employment history)
- A state-issued photo ID, such as your passport or driver’s license
- Statements of all your assets (retirement accounts, investment accounts, checking and savings accounts, etc.)
- Bankruptcy discharge documents (if applicable)
- A recent credit report (typically obtained by the lender)
- Records of any outstanding debts, such as credit cards and student loans
- In some cases, lenders may require additional documentation, like a history of alimony payments and gift letters, so make sure to ask before applying
Lenders will perform hard credit inquiries when you apply, making sure there are no red flags in your credit history that may impact your chances of approval. If you apply with multiple lenders within 45 days, your score will not be affected. Credit reporting agencies recognize this as shopping around for the best mortgage rate.
Another good idea is getting a mortgage pre-approval before deciding on a property. Getting a pre-approval letter will save you time and make the mortgage process more manageable.
It is important to note that student loans count against your debt-to-income ratio, which can make applying for a mortgage a tricky proposition for many individuals. However, getting a mortgage when you have student loans is not uncommon, so make sure to thoroughly explore all of your bank’s options to secure the best rates.
Once you’ve submitted your application, the lender will generally provide you with a loan estimate within three business days. The loan estimate is a document that outlines the preliminary terms of the loan you have requested.