How to Apply for a Mortgage: The Complete Guide

Before you make an offer on a home, you may want to get your financing lined up—and unless you're buying a house with cash, that means applying for a mortgage. If you're like most homebuyers, you probably have plenty of questions about how to apply for a mortgage and what's involved.

Here's the good news—with a bit of know-how, research, attention to detail and the support of a mortgage banker, the mortgage application process doesn't have to be overwhelming.

Ready to begin? From rate quotes to preapprovals to closing, here's everything you should know about the mortgage application and approval process before you apply for a mortgage.

Mortgage prequalification versus preapproval

Some people use the terms mortgage prequalification and mortgage preapproval interchangeably, but they're different. Before you begin the homebuying process, it's helpful to understand how they differ.

Mortgage prequalification

Mortgage prequalification is a light review of your eligibility as a borrower, where a potential lender collects some basic information about your finances—including your income, debt, assets and credit score. But because you don't have to provide any documentation, a lender only issues a nonbinding commitment for a loan in the form of a prequalification letter, which is no guarantee that you'll get final approval for a mortgage.

Mortgage preapproval

Mortgage preapproval involves a significantly more comprehensive application process, where a lender performs a credit check as well as verification and analysis of your current financial situation based on the documentation you submit. Once preapproved for a mortgage, you may receive a written letter from the lender stating that you qualify for a certain loan amount contingent on underwriting.

Is it better to be prequalified or preapproved for a mortgage?

Why get preapproved for a mortgage? Simply put, mortgage preapproval carries a lot more weight than prequalification. Getting preapproved for a mortgage reassures sellers that you'll likely be able to finance the purchase, proving you're a serious buyer. In fact, in a competitive real estate market, many sellers won't accept an offer before receiving a preapproval letter from your lender.

Applying for a mortgage

To apply for a mortgage preapproval online or in person, be prepared to provide a lender with a sizable quantity of paperwork. While requirements vary by lender, the following mortgage application checklist is a good starting point.

• Two recent pay stubs showing your year-to-date income
• Federal returns from the past 2 years
• W-2 forms from the past 2 years
• Proof of down payment funding, such as a bank statement
• Recent statements for all your assets, such as checking accounts, savings accounts and investment accounts like CDs, IRAs and other stocks or bonds
• Residential history for the past 2 years including landlord contact information if applicable
• Statements of any other real estate holdings

Depending on your circumstances, you may be required to supply additional documentation. For example, if you're paying any portion of your down payment with a monetary gift from a loved one, the lender may ask you to submit proof that the money isn't a loan. This is typically achieved by asking the individual who gave you those funds to write a letter affirming that the money was a gift and doesn't require repayment.

Self-employed individuals may need to provide additional documentation. Requirements vary by lender, but some include additional business tax returns from the past two years, a profit and loss statement, a year-to-date balance sheet and a copy of the business license.

How long does a preapproval for a mortgage take?

Preapprovals may take from 24 hours to as long as 10 days, depending on the lender and your financial situation. Typically, a mortgage preapproval won't expire for 90 days.

If your preapproval expires before you make an offer on a property, you should provide your lender with updated account statements. If you choose another lender, you should submit a new mortgage application.

Will getting multiple mortgage rate quotes hurt your credit?

During the estimate and preapproval processes, lenders perform a hard pull on your credit, which may cause a small drop—typically five points or less—in your credit score. However, it's a common misconception that your credit score takes a hit each time you request a quote.

Credit checks from multiple mortgage lenders appear as a single inquiry on your credit report as long as they're requested within the same 14-day window.

Reviewing loan estimates

The quotes you receive include an estimated interest rate and likely closing fees, as well as other pertinent details. According to Maggi Bryant, a mortgage banker and vice president at First Citizens, it's important to look beyond the interest rate when comparing these estimates, as lenders with unusually low interest rates may occasionally charge significantly higher fees.

That happened to one of her clients, she recalls. "He asked me why another lender had a lower interest rate than ours, but when we looked at the estimate together, I pointed out that their origination fee was 0.6% higher than ours," Bryant says. "That extra fee represented a chunk of money."

Finalizing your mortgage loan

As you make your way through the closing process, there are several more steps before you are able to take possession of the home, including finalizing the mortgage loan.

To do this, notify your lender that you wish to proceed. Confirm the actual purchase price and address for the property, along with the down payment and final loan amounts. Also, verify that your financial situation hasn't changed. This could require additional documentation. Your mortgage banker's a helpful resource as you navigate these final steps and prepare to close on your new home.

Key takeaways

• While a mortgage prequalification may be helpful during the first stages of your journey to homeownership, a mortgage preapproval carries more weight.
• A mortgage preapproval isn't a guarantee that your loan will be granted. You still may want to go through a final approval process.
• Even if you're going to apply for a mortgage online, it's a good idea to speak with a mortgage banker. They help guide you through the process.