Buying a home is one of the biggest financial decisions you'll ever make, and securing a mortgage is the most critical part of the process. If you are wondering how a mortgage works or how to get started, this step-by-step guide will walk you through the entire journey.

Step 1: Get Financially Ready

Before you ever look at homes on Zillow or contact a lender, you need to understand your own financial health. Lenders will be looking at three primary factors:

  • Credit Score: You generally need a minimum credit score of 620 for a conventional loan, or 580 for an FHA loan. Check your credit reports for errors and pay down high-interest debt to improve your score.
  • Debt-to-Income (DTI) Ratio: This is the percentage of your gross monthly income that goes toward paying debts. Lenders prefer a DTI below 43%. Learn how to calculate your DTI ratio here.
  • Down Payment & Closing Costs: You do not need 20% down. You can buy a home with 3% to 5% down, but you also need to budget an additional 2% to 5% of the purchase price for closing costs.
Calculate Your Budget

Use our Affordability Calculator to determine your maximum purchase price based on your current income and debts.

Step 2: Get Pre-Approved

A pre-approval is a formal letter from a lender stating exactly how much money they are willing to lend you. In today's competitive housing market, most real estate agents won't even show you houses until you have a pre-approval letter in hand.

During this stage, the lender will do a "hard pull" on your credit and ask you to submit documentation such as W-2s, tax returns, pay stubs, and bank statements.

Step 3: House Hunting & Making an Offer

With your pre-approval letter, you know your maximum budget. Once you find the right house, your real estate agent will help you draft a purchase agreement (an offer). If the seller accepts, you are officially "under contract."

Step 4: The Underwriting Process

Once you are under contract, the mortgage process shifts into high gear. The lender's underwriter will thoroughly review your finances to ensure nothing has changed since you were pre-approved. During this time:

  • Do not open new credit cards.
  • Do not make large purchases like buying a car.
  • Do not change jobs.

The lender will also order a home appraisal to ensure the property is actually worth the amount you agreed to pay.

Step 5: Closing Day

Once the underwriter gives the "Clear to Close," you will be scheduled for closing day. Three days before closing, you will receive a Closing Disclosure outlining your exact final numbers. On closing day, you will sign a mountain of paperwork, wire your down payment and closing costs, and finally receive the keys to your new home!