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How to Successfully Navigate the Mortgage Process

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Mortgage Loan Approval Process

This article is part of a series on getting a home loan. Read part oneHow to Get Pre-Approved for a Home Loan.

There’s a lot involved in the mortgage process and what you need to know to get your home loan approved. The home loan process is only part of the equation though. It’s important to take certain steps before the kicking off the mortgage process.

Before Beginning the Mortgage Process

Before jumping in and starting down the mortgage process, taking certain steps will help increase your chances of getting your home loan fully approved.

  1. Pay your bills on time gives you a good credit history. Late payments on your credit reports can negatively affect your credit score, which can play a significant role in whether you get approved for financing or not. Learn more about how your credit score can affect the rate and conditions you receive on a home loan.w
  2. Be mindful of changing jobs when you’re preparing to purchase a home. Lenders want to see stability and continuity in your employment history. Lenders will look at your employment history to make sure you have enough—and will likely continue to have—income to repay the loan. Be prepared for the lender to ask for more documentation to prove that your work history and income will be sufficient for you to handle a home loan.
  3. Research the best home loan solution for your needs. Take time to educate yourself on the ins and outs of fixed rate, adjustable rate, and FHA and VA home loans. It is also a good idea to learn about all the fees that may be involved with each home loan type and what kind of credit is needed for each.
  4. Determine what you can afford. Find out what the current average mortgage rates are. Also keep in mind that you’ll need to pay for homeowner’s insurance and local property taxes in addition to your monthly mortgage payment.

Understand Your Current Credit Standing

When applying for a home loan, most lenders will look at your FICO Scores. Scores help lenders determine your credit risk and are used to determine the interest rate charge on the home loan.

You have three FICO scores; one from each of the three major credit bureaus— Equifax, Experian, and Transunion. The scores offered by these credit reporting agencies is based on the information found on your credit report and is during your home loan process.

Remember, changes to your credit reports and credit scores can derail the home loan process at any time. The lender may check your credit score just hours before your loan is finalized. It’s wise to stay on top of your credit. You can check your Experian score for free on credit.com. You might also consider a service to monitor all three of your credit reports bureau to catch any major changes as quickly as possible.

If you need to improve your credit score before applying for a home loan, aim to:

  • Keep your credit balances low
  • Set up payment reminders, to avoid the risk of late payments
  • Reduce your debt as much as you can by paying off accounts
  • Dispute any errors you find on your credit report

To learn about more ways to improve your score, see “11 Ways to Improve Your Credit Score.”

Preapproval and the Home Loan Process

Once you’ve ensured your credit is ready to start the home loan process, you’ll typically begin by working with a loan officer at a bank or mortgage provider to get pre-approved for a mortgage. Your loan officer will help you understand the required documents you need during the mortgage process. Your loan officer will help you complete a mortgage prequalification application and then submit the application along with the required documents, to an underwriter.

The underwriter will come back with one of four decisions about your application:

  • Approved
  • Approved with conditions
  • Suspended, which means more documentation is required before the underwriter can make a decision
  • Denied

In many cases, a mortgage pre-approval application comes back as “approved with conditions.”

To turn an “approved with conditions” decision into a fully approved loan is to meet (or eliminate) those conditions, whatever they are. Your loan officer should help you navigate this process.

Lock In Your Rate and Terms

Once you are approved for your loan, it’s important to lock in an interest rate and loan terms, such as how long the long will last and whether the interest rate is fixed or adjustable, with your lender. Locking in commits your lender to funding your loan at the specified rate. It takes the risk of changing interest rates, which can happen daily, out of the picture.

You want to get your loan terms in writing. It’s also important to remember that the lender will likely give you a time limit on how long these terms and conditions are valid, meaning you have to finalize your loan before they terms expire.

Once you’ve locked in your rate and terms, congratulations! You’re cleared to make an offer on a house with the confidence that you will be able to close on your new home.

Stop though. The hard work isn’t quite over yet. It’s still up to you to do everything you can in order to ensure your closing goes smoothly.

Close the Deal: Satisfy the Underwriter’s Conditions

When your application is approved, it’s important to check the underwriter’s checklist of borrower conditions. The list will specify everything you need to do in order to ensure your loan will get approved for closing.

The conditions often include requests for alternative and supplementary documentation, explanation and/or correction of anomalies, and verifications and attestations (find more below).

The Importance of Borrower Conditions and Locking In

The borrower conditions of a loan include the interest rate and the amount of the principal, the lender’s desire to actually finance the borrower, and other conditions on how you, the borrower, intend to use the loan.

Borrower Conditions

Each phase of the mortgage process involves steps you and your the loan officer have to execute carefully in order to ensure that you get the best loan available and that the purchase comes to a smooth and efficient close. Consider the following example of what can go wrong.

Potential homeowner, Elizabeth, received loan approval. The lender sent loan documents to the closing agent. Elizabeth signed the document and put her down payment into escrow (an account used after you move into your home and that your lender uses to pay your property taxes and homeowners insurance for you.) She expected the loan to fund, but the lender refused to fund the loan, stating that she had not satisfied certain conditions.

Elizabeth had missed the lender’s specific closing instructions, a sheet that tells the closing agent what they must do to complete the transaction. Most of these items don’t require attention, but a loan officer’s foremost job at this point is to ensure that someone takes care of any items that need attention.

In this instance, the closing agent didn’t bring the instructions to the attention of the borrower at the time documents were signed, and it sounded as if the loan officer stopped doing his/her job.

The moral of story: Ensure you ask your loan office if everything is taken care of.

Lock In Your Interest Rate and Loan Terms

Locking in your interest rate and loan terms sets your mortgage approval application in stone. Locking in protects you against increases or other changes while your application is processed. A locked-in rate can also prevent you from taking advantage of rate decreases during this period. Learn more about when to lock in your rate.

How to Satisfy Borrower Conditions

When a lender issues an approval letter, there are almost always some conditions, which can include the following.

Alternative and Supplementary Documentation

  • If you lack a credit history or score, service accounts—such as utilities, cable, or telephone—may provide acceptable alternatives
  • If you’re self-employed or have rental or other unconventional income, you may need profit and loss statements prepared by a licensed Certified Public Accountant (CPA)
  • You must supply updated account statements immediately prior to closing

Explanation and Correction of Anomalies

  • You must explain or correct inconsistencies in credit reports
  • You may be asked to get an official explanation of wages, tax statements, pay stubs, etc. from your employers’ payroll departments or other authorities

Verifications and Attestations

You may be asked for verifications of the following:

  • Employment and income
  • Housing or rental history
  • Gift funds (by means of a sworn letter from the donor foregoing repayment)

To get ahead of addressing conditions, consider getting pre-approved by a reliable lender before starting the mortgage process. This can help identify potential conditions earlier in the process. And, when your lender tells you the loan has been approved, make certain you see the approval sheet and work with your loan officer to assure that you’re complying with all requirements and any conditions.

Later, when you sign your mortgage loan documents, get a copy of the list of all remaining conditions from the closing agent and make sure someone is handling the items listed. It’s important to leave plenty of time for items to be corrected on your credit reports and for any legal issues to be documented and settled by the relevant authorities, if necessary, because reports are typically pulled and reviewed again just prior to closing.

If you don’t ensure all conditions are satisfied, it’s possible for the sales contract or loan approval to expire before you secure your loan.

How to Lock in Your Interest Rate and Loan Terms

Once the home you plan to buy has been appraised to determine its value, known as an appraisal report, and which will be provided to your lender, it’s time to consider locking in your interest rate and terms. First, get your lender’s current rate sheet and compare it with the one you received when you were pre-approved. This will show you how interest rates have changed since you began the home loan process. Then you can sit down with your loan officer and review your alternatives.

The lock period is the length of time you have to close the loan and still ensure you receive your locked in interest rate. Lock periods of 15, 30, or 45 days are available. If you have a 45-day escrow, you can lock in immediately and ensure your rate, so long as you close your loan within that 45-day period. Alternatively, you could wait 15 days and lock for 30 days at a slightly lower price, but you take the risk that the good rate you got 15 days before may no longer be available. Interest rates can change a lot in 15 days. That’s why it generally makes sense to lock in right away and avoid the risk of paying a higher interest rate.

Here’s an example scenario of the value of locking in your rate. Let’s say you can lock in for 6% and 1 point today, but you choose not to do that. If rates increase, and 15 days later the rate is 6.375%, you lose money. It may not seem like much of an increase, but that slight percentage bump means you pay $375 more per year for every $100,000 you borrow. For a 30 year loan, that could cost you more than $11,000.

Once you lock in your rate, get a copy of the lock confirmation from your lender. This confirmation is not customarily sent to borrowers, but is the only way to verify all sources of origination fees, borrower names, loan terms, the interest rate, and the date and length of lock.

With the lock confirmation, you can verify that your loan officer has honored the agreement you were originally offered. Without it, the loan officer could charge you points “to lower the rate,” but leave it high enough to get undisclosed points from the lender, too. A loan rep might even charge you to lock in but not do so, and keep the fee if rates hold.

As you embark on the mortgage process, learn more about mortgages and the home-buying and financing process in our Mortgage Learning Center.

This article has been updated. It was originally published November 17, 2017.


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  • Orissa Parker

    I lost my house due to a separation and divorce, he stop paying and the house foreclosure, I been in foreclosure for three years, how do I started over??

    • http://www.Credit.com/ Gerri Detweiler

      Orissa, I would strongly encourage you to start by meeting with a consumer bankruptcy attorney. You need to find out whether the foreclosure is completed and whether you may still be held legally liable for any debt remaining after the foreclosure. You also need to check your credit reports to see the dates listed as they will affect when you are able to buy a home again. Here’s how to get your free annual credit reports.

      • Orissa Parker

        Ok thank you I will check in nto that

  • http://www.credit.com/ Credit.com Credit Experts

    Elle —
    Talk to a mortgage lender to see where you stand. It’s good that both of you have been keeping tabs on your credit scores. If you applied for a mortgage, it would generate a “hard inquiry,” which causes a small, temporary drop in your score (the same thing happens if you apply for a credit card). Whether the application is accepted or rejected is not reported, so a rejection would not hurt your score.

  • Sarah Renee Stewart

    Are mortgage company is saying my bf and I are common law. We don’t understand how but ok whatever. We have turned everything in. But there saying I have a judgement on my credit report. Pls remember my name is not on this loan. So they said it had to be paid before we could close. I have called everyone. Even the people that filed the claim they have no records of me having a judgement. No one does. I can’t pay I judgement no one can find. I did a dispute. What should I do so we can close.

    • http://www.Credit.com/ Gerri Detweiler

      I am completely mystified. However, presumably your loan officer wants you to close so he or she can also get paid. Have you asked them to help you resolve this?

      • Sarah Renee Stewart

        Yes they just say pay it. We’ll I can’t so not sure what else to do. It’s been horrible with these people. They keep missing things and messig up on things.

        • http://www.Credit.com/ Gerri Detweiler

          Ugh…as you can imagine with this kind of situation it’s hard for me to say what to do because I am not even sure what’s going on.

          You may need to talk to the court where this judgment is supposedly filed. It is possible there is a clerical error or that they have mixed you up with someone else. This article may help: I Found a Judgment on My Credit Report. Now What?

    • ScottSheldonLoans

      I would offer to settle it. Mortgage company probably wants the debt zeroed out. They probably don’t care how much you paid, so long as the debt is closed out with no balance. Why is this considered his debt if you are not married?

      • Sarah Renee Stewart

        There saying were common law. Don’t see how. Now there saying not only do I have to pay it but it has to clear the courts as we’ll.

  • ScottSheldonLoans

    I would always get a second opinion especially if your desire is to work with a credit union. I have found credit unions are great for niche programs only.

  • ScottSheldonLoans

    Jennifer,
    Can you more details? This too broad of problem to solve with knowing more info.

    • Jennifer Bennett

      Ok so because I haven’t paid on a bill for 12 months it doesn’t meet FHA requirements, eventhough 16 bi-weekly payments have been paid on time!!

  • Saberron

    Sounds like the bank was waiting for the supreme court ruling regarding extinguishing mortgage debt in chapter 7. SC ruled in Bank of America’s favor just a day or two ago in that the debt can’t be included in the bk .

  • hloevering

    my question is I have been working on paying off my past debts now with the help of a debt management program and its looking like we might have to find our own home faster than I initially planned and I am on social security disability I wont be able to rent anywhere due to credit and my fiancé’s credit and the fact that we have a dog that helps me with my health (no she is not certified as a service dog) would I be able to get a mortgage as long as I would have the help with my fiancé with bills etc… and have the payments come out of my check like my debt management payments its kind of getting close to an emergency setting

    • http://www.credit.com/ Credit.com Credit Experts

      That’s a better question for your credit counselor, who should have far more information about your credit status. We encourage you to ask.

  • Jen Schwarz

    Hi, my husband and I are in escrow. We obtained a preapproval before putting an offer on the house. Now, the lender is telling us that there is a collection action shown in one 1 of the 3 credit bureaus in 2009 in that I am completely unaware of. This has been holding up the final approval. What can I do to remove this? I am disputing the amount since I paid off all my student loans around that time and have no idea what this collection action is.

    • http://www.Credit.com/ Gerri Detweiler

      Simply disputing it may not be the solution as the following article explains. You need to find out what it is for and whether it is valid. Your loan officer should assist you if you aren’t sure how to proceed. Please read: How a Credit Report Dispute Could Stop You From Buying a Home

    • ScottSheldonLoans

      You definitely do not want to dispute this account. Your lender will not allow the loan to close if it is in dispute. You have if you choices. Try to qualify with the loan as is, or put more money down, reduce the interest rate, or whatever other advice your loan professional can give you leaving the obligation alone making no changes. If those options don’t work, the next step is to attack the obligation directly in one of two ways. Either you pay the account off in full or you do what’s more common where you negotiate a settlement with that creditor for pennies on the dollar of the original balance so the account is specifically zeroed out at closing. For example let’s say you owe $5000 on this whole collection account, and they agreed to zero the balance out, in exchange for $1000. The obligation must have a zero balance associated with it to close your mortgage. It’s not about how much you pay the creditor it’s about the fact the lender need the account zeroed out so however you can work that directly with the creditor, do it. The older the account is the more likely they are to accept something rather than nothing. Hope this helps and good luck with your house purchase!!

  • Orlando Artist

    Not true, credit unions charge u a lot up front, to compare: Fairwinds offered me %3 down payment and 4.25% rate total cost with down payment and closing = $20,000 (Remember with 3% down you PMI is much more expensive than 5% down)
    Another lender offered me 5% down, 4.25% rate total cost including the down payment was $20,000
    In those 2 scenarios: Credit Union monthly payment was $1730/m
    The one with the broker the monthly payment was $1565/m for the same house same everything.
    With the same $20,000 upfront cash I get 5% vs 3% equity and I get lower monthly payment, the rate is the same for both.

  • Orlando Artist

    yep

  • kickrent

    I want to buy a home as the rent in my area is ridiculously high. I am presently self-employed with no work history for over two years as I was living off my inheritance. The job market has been poor here. However, I have excellent credit history and no debts. Can I still be approved for a home loan and how would I go about it in my unique circumstances? I still have some inheritance left.

    • ScottSheldonLoans

      Your inheritance would need to be converted to income as it sounds like you just became self-employed? after speaking with your mortgage company to see what income options are available, I would take that information and speak with a qualified financial advisor who can advise you on the various forms of income you can create with your inheritance. This of course is assuming you have inheritance funds left over. Alternatively if either one of those are not an option you could potentially still buy a home if you had a cosigner, or became employed under it W-2. Lenders want 2years on self-employed income validated with 1040s.

  • Elsie Dodson

    I am wanting to buy asmall house that is wethin my price range. How will these factors effect my chances of getting a loan. I am widow, 70yrs old and living on social security and small pension. My yearly income net, is 35,000. credit score 0f 675-680 fico. could I get a FHA loan for improvements if the house needed it. I realize I would only qualify for an older home that would have wear and tear.

    • http://blog.credit.com/ Kali Geldis

      Hi Elsie —

      There are FHA 203(k) loans that are specifically designed to allow homeowners to rehab their house and do repairs after the purchase. Your best bet is to talk to a local mortgage lender who specializes in these types of loans. you can find one near you using this search tool from the HUD.gov:

      http://www.hud.gov/ll/code/llslcrit.cfm

      Keep in mind that most lenders require a decent credit score, so you may want to take a look at your credit reports and see what you can do to raise your credit a few points to help qualify. Your FHA lender can help you figure out what credit score is required.


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