The mortgage loan process explained in 9 steps

Before most buyers can close on a home, they need to qualify for a mortgage. Understanding the steps ahead of time helps you stay organized, avoid surprises, and move from offer to keys with confidence. Here’s a clear, nine-step path from budgeting to closing.

1. Estimate your budget

Start by determining how much home you can comfortably afford. Consider income, existing debts, monthly expenses, savings, and potential down payment. Many buyers use guidelines like keeping the mortgage payment near 28% of gross monthly income and total debt payments under 35% of pre-tax income (or about 45% of after-tax income). Don’t forget property taxes, homeowners insurance, and potential private mortgage insurance (PMI). A larger down payment can lower your monthly costs but avoid draining your emergency fund.

2. Choose a mortgage type and term

Select a loan that fits your finances and goals. Key decisions include:

• Conventional vs. government-backed (FHA, USDA, VA)
• Fixed-rate vs. adjustable-rate mortgage (ARM)
• Repayment term: commonly 15, 20, or 30 years
• Conforming vs. jumbo (nonconforming) loans
• Standard amortizing vs. interest-only structures

Consider your expected time in the home, tolerance for rate changes, and cash flow preferences.

3. Get preapproved

Shop multiple lenders for rates, costs, and service. When you’re ready, complete a preapproval. The lender will run a hard credit check and verify your finances, issuing a letter stating your eligible loan amount—often valid for about 60–90 days. Strong credit generally earns better rates; many lenders look for a score of at least 620. Be prepared to provide pay stubs, W-2s or 1099s, bank and investment statements, tax returns, and identification. Stable employment and income history help.

4. Find a property and make an offer

Work with your agent to tour homes and craft an offer within your preapproved range. Offers commonly include earnest money (often 1%–3% of the price) to show good faith. If the seller accepts, your signed purchase agreement goes to your lender to keep the loan moving.

5. Submit your mortgage application

After you’re under contract, you’ll complete the full application and provide any updated documents. Expect a second credit check. Quickly respond to requests for:

• Income documentation (W-2s/1099s, pay stubs, tax returns)
• Assets (bank, retirement, and investment statements; gift letters, if applicable)
• Debts (student loans, auto loans, credit cards, existing mortgages)
• Property details (address, purchase price, taxes, insurance)
• Employment information (employer, role, tenure, salary)

6. Be patient and avoid new debt

From application to closing typically takes around 30–50 days. During this period, keep your finances steady: don’t open new credit, finance big purchases, change jobs without consulting your lender, or miss payments. Significant credit changes can delay or jeopardize approval.

7. Get a home inspection

While not always required, a professional inspection is strongly recommended. The inspector evaluates the home’s structure, systems, and safety issues. If serious problems arise, you can request repairs or a price reduction, or walk away if your contract allows. For specialized concerns (e.g., roof, foundation), you may need additional expert evaluations.

8. Complete underwriting and appraisal

Underwriters verify your finances and the property details, including title work and proof of homeowners insurance. An independent appraisal estimates the home’s market value. If the appraisal is lower than the purchase price, you may renegotiate with the seller, increase your down payment to cover the gap, or, in some cases, cancel per your contract terms. Once everything checks out, you’ll receive “clear to close.”

9. Close on your new home

Before closing, you’ll receive a breakdown of closing costs, typically 2%–5% of the loan amount, which may include:

• Lender and underwriting fees
• Appraisal and survey fees
• Title search and title insurance
• Recording and escrow fees
• Prepaid items (interest, taxes, insurance, and PMI if applicable)

Do a final walk-through to confirm agreed-upon repairs and included items. On closing day, you’ll sign documents, pay closing funds by wire or cashier’s check, and receive the keys. Many areas now allow hybrid or fully remote closings.

FAQ

What’s the first step when applying for a mortgage?

Set a realistic budget, including your target monthly payment and down payment. Then compare loan types and lenders and pursue preapproval.

How long does mortgage processing take?

Timelines vary by market and file complexity, but many buyers close within about 30–50 days after submitting a complete application.

How will I know I’m approved?

Your lender will notify you and issue a “clear to close,” confirming your final approval and scheduling your closing.

What should I avoid after applying?

Don’t open new credit, make large purchases, miss payments, or change jobs without consulting your lender. Keep spending and balances stable until after closing.

The mortgage journey can feel complex the first time, but with preparation, timely responses, and a steady financial profile, the process is straightforward—and ends with keys in hand.