How to Get Approved for a Home Loan in 3 Steps

What to do now

Decide when to get a preapproval letter

Lenders typically check your credit before issuing a preapproval letter, and the letter may have an expiration date on it (typically 30 to 60 days). For these reasons, many people wait to get a preapproval letter until they are ready to begin shopping seriously for a home. However, getting preapproved early in the process can be a good way to spot potential issues in time to correct them.

Find out what the lender’s preapproval process is

Every lender is different. Find out what you need to do and what documentation is requested.

Request a preapproval

Follow up with the lender and provide the necessary information.

Ask questions

Ask the lender what assumptions they made to issue the preapproval. Is there anything about your situation that could lead to your loan being denied later on, or that could increase your interest rate or loan costs?

4. Decide What Type of Loan You Want

You’ll need to evaluate your options to decide which type of mortgage loan would best suit your needs. A few things to keep in mind include:

Conventional vs. government-backed. There are two main types of mortgage loans. The first is a conventional mortgage, which means it’s provided by a private bank, credit union or online lender. These loans tend to have fairly strict eligibility requirements and higher down payments.

If your credit isn’t in great shape and/or you haven’t saved up much for a down payment, you may still be able to buy a home through a government-backed mortgage such as an FHA loan or VA loan. These loans are still borrowed through individual lenders, but the funds are insured by the federal government. This makes these loans much less risky to the banks providing them, allowing you to secure more flexible terms.

Fixed vs. variable interest rate. Another big consideration is choosing between an interest rate that’s fixed for the entire term of your loan or one that can vary. Fixed-rate loans are generally a safe bet, as you know exactly how much your mortgage payment will be each month. Variable rates tend to be less expensive in the first few years of the loans. However, the rate will reset one or multiple times throughout the loan term according to the current market. That means your interest rate could increase in the future, causing your mortgage payments to become unaffordable.

Shorter vs. longer term. Finally, consider how the length of your loan will impact the cost. On one hand, a shorter loan of 15 or 20 years will allow you to pay off your loan faster and save money on interest charges. However, that also means the monthly payments will be much higher, stifling some of your cash flow. In fact, you may have to borrow a smaller amount in this scenario.

On the other hand, you could extend the loan term out to 30 years or longer. That would help make the monthly payments more affordable and even allow you to borrow more. But by increasing the number of years you spend paying back the loan, you also increase the amount of interest paid over time.

Take this example: A $200,000 loan at 4% interest over 15 years would cost you a total of $266,288 when all is said and done. If you lengthen the term to 30 years, the monthly payment reduces by about a third, but you also tack on an extra $77,451 in interest over the life of the loan.

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How to get approved for a home loan: FAQ

How can I get approved for a home loan quickly?

Prepare all the documents you’ll need before you apply and be responsive to queries. Choose a lender with an end-to-end digital mortgage process if you want the speediest approval or preapproval.

What will stop me from getting approved for a home loan?

The main barriers to mortgage approval are too low of a credit score, too small of a down payment, too high of a debt-to-income ratio, or an unreliable employment history.

What should I bring to the bank for a home loan?

You’ll need to bring a variety of financial documents to the bank for a home loan, including past years’ W2s or 1099s, tax returns, pay stubs, and bank statements. The lender will also pull your credit and verify your employment status. Most lenders have digital application portals nowadays where you can upload these documents digitally instead of bringing physical copies to a brick-and-mortar office.

What credit score do you need to get approved for a house? 

FHA loans have the lowest score thresholds: 580 with a 3.5 percent down payment or 500 with a 10 percent down payment. But you may be better off with a loan from Fannie Mae or Freddie Mac and their minimum score is 620.

Does a preapproval hurt your credit? 

There’s a hard credit check during the preapproval process, but this typically dings your credit score by only five points or less. And don’t worry about comparison shopping. “Within a 45-day window, multiple credit checks from mortgage lenders are recorded on your credit report as a single inquiry,” says the Consumer Financial Protection Bureau (CFPB).

Is preapproval for a mortgage required?  Technically, no. However, sellers and real estate agents are unlikely to take you seriously if you can’t show a current preapproval letter. If you’re making an offer on a home, the seller and their agent want to know you’re a serious buyer with financing lined up who can afford the property.

Your down payment

Putting a higher amount of money down may lower your interest rate and build equity in your home quicker. If your down payment on a conventional loan is less than 20%, you must pay private mortgage insurance (PMI), which covers the lender if you stop paying your mortgage and default on your loan. The yearly cost of PMI is about 1% of your outstanding loan balance and is added to your monthly mortgage payment. You can request to have PMI eliminated once your outstanding balance reaches 80% of the original loan amount.

Some loan types may require less of a down payment, such as only a 3% to 5%. Federal Housing Administration (FHA) loans require a 3.5% down payment, while the U.S. Department of Veterans Affairs (VA) loans may not require any money down.

How Long Does a Pre-Approval Take?

Getting pre-approved takes a few minutes to ten days, depending on how and where you apply.

Here’s how long they take from fastest to slowest:

Standard: In-Person Meeting

The traditional way to get pre-approved is to schedule an in-person interview with an officer of a bank. Pre-approval meetings are restricted to hours when the bank is open, and loan officers often require multiple days to review and pre-approve an application. Follow-up meetings may be required.

Faster: Online Form

Another way to get pre-approved is to complete a mortgage application online via a mortgage lender website, and financial documentation including W-2 statements, tax returns, and pay stubs. A lender will generally confirm your information within one day.

Fastest: Self-Service Pre-Approval

Self-service pre-approvals are the fastest, easiest way for buyers to get pre-approved. Verifications are automatic. Buyers get instant answers in about three minutes, 24/7.

Get pre-approved for a mortgage today.

Mortgage Preapproval FAQs

How long does preapproval last?

​​Preapproval doesn’t last forever. Check your expiration date and keep it in mind as you look at homes. Though it varies from lender to lender, preapproval is typically valid for 60 – 90 days. If you haven’t settled on a house, you can request a renewal by giving your lender your most up-to-date financial and credit information.

Why should I get preapproved?

If a preapproval doesn’t get you a loan right away, why get one? Preapprovals have several benefits:

  • It’s easier to shop: Many real estate agents require you to get preapproved before you shop for a home. Preapprovals make the house hunting process easier for you and your real estate agent.
  • It makes your offer stronger: If you’re shopping in a competitive housing market, a preapproval can be crucial to getting your offer accepted. Sellers aren’t just looking for the highest offer. They’re also looking for offers that aren’t likely to fall through. A preapproval tells buyers you can get financed for the amount you’ve offered.
  • It gives you time to sort out issues: There are reasons both buyers and sellers may need to get to closing fast. Getting preapproved means you’re getting the bulk of the mortgage process done upfront. That way, once you’ve had an offer accepted, you can just focus on getting ready for your move.

In addition to considering your credit score, lenders will want to verify your employment and income. They’ll also be considering your debt-to-income ratio (DTI), which is a calculation of your total monthly debts, divided by your monthly income. This ratio, expressed as a percentage, helps lenders make sure you have enough income to reasonably cover your debts.

The exact DTI needed for mortgage approval varies by loan type. But generally speaking, you’ll want your debt-to-income ratio to be 50% or lower.

The Bottom Line

A preapproval is a great first step toward buying a home. Once your financial information is verified, you’ll have a clear idea of how much home you can afford. Getting preapproved before you start your house hunt benefits everyone involved.

To get started, apply online now with Rocket Mortgage.

Whats the Difference Between Mortgage Pre-Approval vs. Pre-Qualification?

The difference between a pre-approval and pre-qualification is that mortgage pre-approvals get used to buy a home – pre-approval cannot. 

Home sellers accept pre-approvals as proof of a good offer because pre-approvals get backed by lenders and double-verified. They include credit verification and an assessment of monthly income. A pre-approved buyer can afford to buy a home.

By contrast, pre-qualifications are weak. 

They include no verifications or reviews by a lender. By definition, a pre-qualification is non-reliable as evidence of a buyer’s ability to buy. As a result, sellers don’t accept offers from pre-qualified buyers.

Learn more about pre-approvals vs pre-qualifications.

3. Get final approval from the underwriter

“Underwriting” is the final stage of the mortgage approval process. During underwriting, the lender does a thorough review of your credit, income, assets, debts, and your future home. A specialist underwriter combs through the paperwork, checking for red flags and hidden risks.

During this stage of the mortgage process, be as patient and responsive to the underwriter’s queries as possible. The sooner you resolve issues, the more quickly you can be cleared to proceed to closing.

Many applications sail through with few if any queries. But the more complicated your application is, the more issues your underwriter is likely to raise. This tends to be the case with applicants who are self-employed, rely a lot on tips and bonuses, or who have a troubled employment history.

4. Employment Verification

Lenders want to make sure they lend only to borrowers with stable employment. A lender will not only want to see a buyer's pay stubs but also will likely call the employer to verify employment and salary. A lender may want to contact the previous employer if a buyer recently changed jobs.

Self-employed buyers will need to provide significant additional paperwork concerning their business and income.According to Fannie Mae,factors that go into approving a mortgage for a self-employed borrower include the stability of the borrower’s income, the location and nature of the borrower’s business, the demand for the product or service offered by the business, the financial strength of the business, and the ability of the business to continue generating and distributing sufficient income to enable the borrower to make the payments on the mortgage.

Typically, self-employed borrowers need to produce at least the two most recent years’ tax returns withall appropriate schedules.

What can a pre-approval do for you?

No, it’s not cash in hand, but a mortgage pre-approval can significantly strengthen your offer (the only better option would be an underwritten approval, which some lenders will provide before you even find a property). It shows home sellers that you have the credit history and financial standing to buy their home.

“If you can get an offer to the homeowner, it says ‘here is my bank statement and I have enough cash and good enough credit to buy your house,’” says Steven Bogan, regional managing director of Glendenning Mortgage Corporation in Toms River, New Jersey. “A pre-approval just helps with less aggravation and less work for everyone in the transaction.”

A pre-approval also tells your real estate agent and yourself what your home shopping price range is. Knowing how much house you can afford means you can be more targeted in your house hunting.

Again, you may not want to buy a house at the top level of your affordability. You need cash reserves for many things once you buy a house including an emergency fund for when things go awry or for new furniture or a lawnmower.

Learn about the Types of Mortgage Lenders

You can get a loan from a variety of lender types including credit unions, major banks, a mortgage broker or an online lender. Let’s look at each option.

Community Banks and Credit Unions

The community bank is the safe choice. You probably have an account there, or had one in the past. There should be more of a personal touch because the community banker makes his money in your neighborhood and needs you as a customer. He can make some concessions on things like credit score and maybe even size of the down payment. Unfortunately, local banks often operate a little short-handed so it may take time to get an appointment or solve a crisis, if you have one.

National Banks

The national banks are the big guys for a reason. They built reputations as places with plenty of well-trained, highly-qualified personnel, who provide lots of loan programs at affordable rates. Yet, they still have time and manpower to offer 24-hour customer care. And they’re not going anywhere. They’re too big to fail and that can be a downside. You’re just a number to big banks. They rarely know you by name and if you’re account isn’t a big one, they may take their time dealing with your problem.

Mortgage Brokers

Mortgage brokers are like the date your sister set you up with: they sound exciting, but you’re not really sure if this will be a good thing. Mortgage brokers are in contact with a lot of lenders, which means they’ll hear about a lot of deals, one of which may be exactly what you need. However, since they get a fee for setting up a deal, there is a question of whether they’re looking at the deals that benefit you … or the ones that benefit them!

Online Lenders

Finally, there is the young, attractive online lenders, who are fast-becoming all the rage. Online lenders have all but eliminated in-person contact. The application and review process is done online and it’s quick. Really quick.  In fact, Quicken Loans, which introduced the “Rocket Mortgage,” has the highest customer-satisfaction rating in the industry. That’s probably why they shot up to No. 2 in home lending in 2016 after closing $96 billion in loans.

What it takes to get approved for a mortgage

Before completing a mortgage application or even strolling through an open house, you’ll want to know these things:

  • Your monthly income
  • The sum of your total monthly debt payments (auto loans, student loans and credit card minimum payments)
  • Your credit score and any credit issues in the past few years
  • How much cash you can put down
  • How much house you can afford (Use our simple calculator to estimate this.)

1. Calculate your income and your monthly debt obligations

Getting approved for the mortgage you want is all The first step in preparing to apply for a mortgage is to document your monthly income and debt payments. You’ll need to provide at least two weeks of pay stubs to your lender, so it doesn’t hurt to start collecting those. If you’re self-employed or have variable income, expect the underwriting process to be a bit more involved. You may, for example, have to submit copies of your past one or two tax returns. The lender may then count the average of your last two year’s income or the lower of the two numbers.

Getting approved for the mortgage you want is all about staying within certain ratios lenders use to determine how much you can afford for a mortgage payment. Large debt payments (like an auto loan or big student loans) will limit the size of the mortgage approval you can get. If possible, pay these loans off or, at the very least, avoid taking any new loan payments on.

3. Determine your mortgage budget

A good rule is that your total housing payment (inBefore ever speaking with a mortgage officer, you’ll want to determine how much house you can afford and are comfortable paying (two different things!).

A good rule is that your total housing payment (including fees, taxes, and insurance) should be no more than 35% of your gross (pre-tax) income.

For example, if together you and a co-buyer earn $80,000 a year, your combined maximum housing payment would be $2,333 a month. That’s an absolute, max, however. I recommend sticking with a total housing payment of 25% of gross income. You’ll find other readers here who are even more conservative.

It can be difficult to equate this monthly payment to a fixed home price, as your monthly housing payment is subject to variables like mortgage interest rate, property taxes, the cost of home insurance and private mortgage insurance (PMI), and any condo or association fees.

4. Figure out how much you can save for a down payment

how much you can save for a down paymentNext, determine how much you can save for a down payment to put towards your first home. In today’s market, expect your mortgage lender to require at least a 10% down payment unless you’re getting an FHA loan or another special program loan.

If you have it, consider putting 20% down to avoid private mortgage insurance (PMI)—costly insurance that protects your mortgage lender should you foreclose prior to building sufficient equity in the property.

Commit to the maximum you want to spend before beginning the mortgage approval process. Real estate agents, your own desires, and some unscrupulous mortgage lenders may try to tempt you into buying a more expensive home than you can afford, perhaps rationalizing the decision by reminding you that real estate is bound to appreciate. That may happen, but I would take a smaller payment you can afford in good times and bad over a bigger one that you may lose in foreclosure.

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The content on Money Crashers is for informational and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor. References to products, offers, and rates from third party sites often change. While we do our best to keep these updated, numbers stated on this site may differ from actual numbers. We may have financial relationships with some of the companies mentioned on this website. Among other things, we may receive free products, services, and/or monetary compensation in exchange for featured placement of sponsored products or services. We strive to write accurate and genuine reviews and articles, and all views and opinions expressed are solely those of the authors.

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