Qualifying for a mortgage is a long process but totally manageable with the right preparation and guidance. There are three main stages to plan for: prequalification, preapproval, and the final mortgage closing. Each stage has its own timeline and documentation requirements, so it's good to know what you're getting into beforehand. Here are the six main steps to take to qualify for a mortgage:
1. Assess your finances to see if you’re ready to buy a house.
Before you head to your first meeting with a potential mortgage lender, take a hard look at your financial picture. This will enable you to answer their questions confidently so you can get a clear idea of what mortgage you can realistically afford.
Here are the key areas to focus on with your finances:
- Credit score: Different loan types have different requirements, but most conventional loans require a minimum score of around 620.[2] Generally, a higher credit score results in better terms and lower interest rates, which can save you tens of thousands of dollars over the life of the loan.
- Debt-to-income ratio: This number compares your monthly debt payments to your monthly income.[3] Lenders usually want to see a DTI below 36%, but many programs can work with a higher number if you have a high credit score or a large down payment.
- Cash reserves: If you’re getting a mortgage, it’s a good idea to have significant cash savings. Typically, lenders will check whether you have enough for a down payment, closing costs, and some extra funds for emergencies. Some mortgages require little or no down payment, but you’ll still want cash reserves to cover unexpected expenses once you have your mortgage.
- Employment history: Stability is just as important as the size of your paycheck when applying for a mortgage. Lenders typically look for a steady job history, usually at least two years in the same field or line of work. If you’re not a W-2 employee, you may need more documentation and your income will be calculated differently.
2. Get prequalified with several lenders.
Some first-time homebuyers may be tempted to go to their current bank, apply for a loan, and stop there. However, it’s important to compare multiple lenders, as they all offer different interest rates, fee structures, and levels of customer service.
For example, one lender might charge higher origination fees (the cost of processing the loan) but offer a lower interest rate, which could save you significant money in the long run.
Get prequalified with a couple of your top lender choices. Prequalification is a quick, low-stakes estimate of how much you might be able to borrow. This will help you see which lender is the best fit for you and gain a better understanding of what your monthly loan payment might look like.
3. Learn about your loan options.
Not all mortgages are created equal. Just because you don’t qualify for one type doesn’t mean you won’t get approved for another. Here are some of the most popular loan programs you may encounter when shopping for a mortgage:
- FHA loan: Backed by the Federal Housing Administration, these loans are a popular choice for many first-time homebuyers. FHA allows a down payment as low as 3.5% with a credit score of 580 or higher and 10% down payments with lower credit scores (as low as 500, in some cases).
- VA loan: This is usually the best mortgage option for veterans, active service members, and eligible surviving spouses. VA loans come with relaxed requirements, including no monthly mortgage insurance and zero down payment.
- USDA loan: These are for buyers in qualifying rural and suburban areas. Similar to VA loans, they often require no down payment and offer flexible credit and income requirements for low-to-moderate income borrowers.
- Conventional loan: This type of loan is not insured by a government agency, although most conventional loans are backed by Fannie Mae or Freddie Mac. They typically require borrowers to have higher credit scores and larger down payments, but usually offer flexible terms, faster processing, better rates, and more options.
Don’t be afraid to ask your loan officer to compare all your loan options side-by-side, using a sample Loan Estimate. Comparing monthly payments and upfront costs is the best way to decide which option is right for your unique situation.
4. Get several preapprovals.
After you compare lenders and loan types, pick your top choices and get preapproved. Unlike prequalification, preapproval is a serious step that requires the lender to verify all your financial documents, including tax returns, pay stubs, and bank statements.
As a result, you receive a preapproval letter, which shows that the lender is tentatively willing to lend you up to a certain amount for a mortgage. For sellers, a preapproval letter serves as reassurance that you can finance the purchase and will strengthen your offer, especially in hot markets.
Will multiple preapprovals hurt my credit score? No, it won’t hurt your credit score if you apply to multiple lenders within the same timeframe (typically 45 days). It will just count as one hard inquiry on your report.[4]
5. Make an offer on a house and prepare for underwriting.
Once the seller accepts your offer, your mortgage application moves to an underwriter. Their job is to verify every claim on your application and double-check your income, employment, and debts. They also want to ensure the house you’re buying is in good condition and worth taking on as a liability.
Your lender will order an unbiased appraisal to determine the home's fair market value. If the appraisal is lower than your offer price, you may need to renegotiate with the seller or cover the difference out of pocket.
During this stage, stay responsive. If the lender asks for any additional information, try to provide it immediately to keep the process on track.
6. Don’t make any big financial moves until closing.
During the underwriting process, the lender will perform a final check of your credit and employment before approving your mortgage. Avoid any significant changes in your situation during this time period. Even positive changes (for example, a new, higher-paying job) can result in delays, while negative shifts (like taking out an auto loan) can disqualify a borrower even after initial preapproval.
Here’s what to avoid before closing:
- Quitting or changing jobs
- Opening new credit cards or lines of credit
- Moving large sums of money between accounts
- Co-signing any other loans
- Making large purchases (especially using credit cards)
If you get approved for a mortgage, your lender must provide you with a Closing Disclosure (CD) three business days before closing.[5] This document lists the final terms of your loan, monthly payments, and exact closing costs.
Ready to see what mortgage options you can qualify for?
If you feel your finances are ready and you’re preparing to start home shopping, it’s time to meet with a lender to get a more complete idea of your mortgage options. A knowledgeable loan officer can compare multiple options to find the best rate and terms for your situation.
The Best Interest Financial team is led by professionals who previously worked for some of the largest national lenders and have closed billions in loans. Now they run Best Interest, which is a smaller mortgage broker that specializes in top-tier customer service, fast closings, and creative financing solutions that leverage the team’s expertise. Whether you’re ready to prequalify or just have questions about where to start, start with a 60-second quote from Best Interest Financial today.
FAQ about qualifying for a mortgage
What makes me qualify for a mortgage?
To qualify for a mortgage, you generally need a stable income, a qualifying credit score, and enough cash for a down payment and closing costs. Lenders also look at your DTI ratio to ensure you can afford the monthly payments.
How much income do I need for a $500,000 mortgage?
The answer depends on your down payment and current interest rates. If you don’t have much debt and can put down a significant payment, you may need a household salary of at least $130,000 to afford a $500,000 mortgage.[1]
What disqualifies you from getting a mortgage?
You can be disqualified for a mortgage if you don’t meet the lender’s specific requirements. Common disqualifiers include a credit score below the minimum threshold, a high DTI ratio, an unstable employment history, or sudden changes to your finances during the closing process.
What are the top reasons a mortgage application gets denied?
The most common reasons for mortgage denial are a high debt-to-income ratio, appraisal issues, poor credit history, and insufficient funds for the down payment and closing costs. Mortgages also get denied during underwriting if they discover undisclosed information about your finances or if you recently did something like take out a new car loan or move a lot of money between accounts. Anything that increases the loans perceived risk is a red flag.
Disclaimer: The information provided in this article is for informational and educational purposes only. It is not intended as legal, financial, investment, or tax advice, and should not be relied upon as such. Mortgage rates, terms, products, and eligibility requirements are subject to change without notice and vary based on individual circumstances, credit profile, property type, loan amount, and other factors. All loans are subject to credit approval. This content does not constitute a commitment to lend or an offer of specific loan terms. For personalized mortgage advice and to discuss loan products that may be suitable for your situation, please contact one of our licensed loan officers.