How to Get Approved for a Mortgage
Mortgage lenders tightened their fists after the recession, but it's still possible for young buyers to get approved for a mortgage. What you need to know.

As the U.S. economy continues to rebuild from the recession that was almost nine years ago, lots of people are looking to buy app德扑圈官方网址homes after years of renting or staying put in a previous house. As a result, the real estate market is competitive in many parts of the country, requiring buyers to put in aggressive offers and, in some places, compete with deep-pocketed investors paying cash.

What this means is that—now more than ever—you need to be qualified for a mortgage before you shop for real estate.

If you’re looking for a mortgage lender, Reali Loans is free, online, and convenient.

Understanding today’s mortgage market

Before the housing crisis of 2008–09, it seemed that anybody with a pulse could get a mortgage (or two or three). Lenders pushed “sub-prime” loans on people with poor credit knowing the entire time that the applicants couldn’t afford the payments and would eventually default.

These lending habits were obviously unsustainable, and we know the rest of the story. The banks got bailouts while millions of app德扑圈官方网址homeowners either lost their app德扑圈官方网址homes or got stuck underwater, owing much more on their mortgage than their app德扑圈官方网址home was worth.

Even as the real estate market begins to recover, the mortgage crisis has left its mark. Mortgage underwriting—the criteria banks use to determine whether to make a loan—is more stringent. That’s not to say that young couples or other first-time app德扑圈官方网址home buyers will have a difficult time getting a mortgage. But it means that proving to the bank that you’re financially prepared for a mortgage is more important than ever.

Related: How Do You Know When You’re Ready To Buy A app德扑圈官方网址home?

What it takes to get approved for a mortgage

Before completing a mortgage application or even strolling through an open house, you’ll want to know these things:

  • Your monthly income
  • The sum of your total monthly debt payments (auto loans, student loans and credit card minimum payments)
  • Your credit score and any credit issues in the past few years
  • How much cash you can put down
  • How much house you can afford (Use our simple calculator to estimate this.)

1. Calculate your income and your monthly debt obligations

 calculate incomeThe first step in preparing to apply for a mortgage is to document your monthly income and debt payments. You’ll need to provide at least two weeks of pay stubs to your lender, so it doesn’t hurt to start collecting those. If you’re self-employed or have variable income, expect the underwriting process to be a bit more involved. You may, for example, have to submit copies of your past one or two tax returns. The lender may then count the average of your last two year’s income or the lower of the two numbers.

Getting approved for the mortgage you want is all about staying within certain ratios lenders use to determine how much you can afford for a mortgage payment. Large debt payments (like an auto loan or big student loans) will limit the size of the mortgage approval you can get. If possible, pay these loans off or, at the very least, avoid taking any new loan payments on.

2. Give your credit health a checkup

Credit HealthBefore applying for a mortgage, obtain both your credit score and your credit history report.

You’ll want to verify there are no errors on the report or recent derogatory items like late payments. Since you may spend months shopping for app德扑圈官方网址homes, you might want to consider subscribing to a service that provides regular credit report monitoring for around $20 a month. You can cancel this after you close on your app德扑圈官方网址home.

As for your credit score, lower your credit score, the higher the mortgage rate you’ll pay.

If your credit is just under 680, you may consider an FHA loan. These government-insured loans allow lower credit scores and much lower down payments, but there are significant additional costs.

Finally, do not apply for new credit in the few months leading up to your mortgage application. Banks get suspicious if it looks like you’re piling on the new credit. My mortgage broker once told me that even getting a credit check for a new cell phone plan could require a letter of explanation to your mortgage lender.

3. Determine your mortgage budget

 mortgage budgetBefore ever speaking with a mortgage officer, you’ll want to determine how much house you can afford and are comfortable paying (two different things!).

A good rule is that your total housing payment (including fees, taxes, and insurance) should be no more than 35 percent of your gross (pre-tax) income.

For example, if together you and a co-buyer earn $80,000 a year, your combined maximum housing payment would be $2,333 a month. That’s an absolute, max, however. I recommend sticking with a total housing payment of 25 percent of gross income. You’ll find other readers here who are even more conservative.

It can be difficult to equate this monthly payment to a fixed app德扑圈官方网址home price, as your monthly housing payment is subject to variables like mortgage interest rate, property taxes, the cost of app德扑圈官方网址home insurance and private mortgage insurance (PMI), and any condo or association fees.

4. Figure out how much you can save for a down payment

 save down-paymentNext, determine how much you can save for a down payment to put towards your first app德扑圈官方网址home. In today’s market, expect your mortgage lender to require at least a 10 percent down payment unless you’re getting an FHA loan or another special program loan.

If you have it, consider putting 20 percent down to avoid private mortgage insurance (PMI)—costly insurance that protects your mortgage lender should you foreclose prior to building sufficient equity in the property.

Commit to the maximum you want to spend before beginning the mortgage approval process. Real estate agents, your own desires, and some unscrupulous mortgage lenders may try to tempt you into buying a more expensive app德扑圈官方网址home than you can afford, perhaps rationalizing the decision by reminding you that real estate is bound to appreciate. That may happen, but I would take a smaller payment you can afford in good times and bad over a bigger one that you may lose in foreclosure.

When and where to apply for your mortgage

You can meet with a mortgage lender and get pre-qualified at any time. A pre-qual simply means the lender thinks that, based on your credit score, income, and other factors, you should be able to get approved for a mortgage. It’s informal and totally non-binding.

As you get closer to buying a app德扑圈官方网址home you’ll want to seek pre-approval. You can meet with a local bank, credit union, or mortgage broker. Or you can even get pre-approved online from any number of national online mortgage lenders.

Wherever you go, this pre-approval isn’t binding, but it’s a formal(ish) indicator of your ability to get approved for a mortgage. Most sellers will want to see a pre-approval within a couple days of receiving your offer.

Our favorite mortgage lender

There are a lot of companies offering competitive mortgage rates, but they’re difficult to find one by one. That’s why we like Reali Loans, which uses technology to ensure you get the best rate on a app德扑圈官方网址home loan. Once you’re pre-approved, Reali Loans matches you with a app德扑圈官方网址home Loan Advisor who helps you through each stage of the process.

Learn more about Reali Loans and find the best mortgage for you today!

Summary

If you’re a prime borrower candidate (good credit and income), a reputable mortgage lender should offer you their best rates right off the bat. But don’t be afraid to shop around. Small differences in your mortgage rate can add up to big savings over the life of your loan.

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About the

Total Articles: 352
David Weliver is the founder of Money Under 30. He's a cited ity on personal finance and the unique money issues he faced during his first two decades as an adult. He lives in Maine with his wife and two children.

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26 comments
Sutton Turner says:

I am glad you mentioned that you need to know your monthly income along with your credit score. We are looking into getting a app德扑圈官方网址home loan to purchase a new house this summer. Thanks for the tips on getting approved for a mortgage.

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Ashley Turns says:

My husband and I are planning on buying a new house since we have our first baby on the way and are wondering what the best way to go about getting a mortgage loan is. So I really like your suggestion to figure out what kind of budget we will have for our mortgage by figuring out what 35% of our gross income is. We will make sure that the loan we take out allows us to keep our total house payment below whatever 35% of our gross income is.

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Rakhi Madan says:

Excellent tips. A good credit standing is really essential for mortgage approval. It must also be ensured that the future applicable rates and terms of payment are fixed and reasonable.

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candy says:

Hi, My husband and I are looking to buy our first app德扑圈官方网址home. I own a small business that just took off this year My earnings before taxes, deductions, and paying out sub- contractors is 50,000.00 and I have saved up 8,000.00 for a down payment. I have very little credit and my husband has good credit. We are both young 22 and 26. My husband doesn’t have anything stating his income for this year because I haven’t filed taxes to show what he has been payed. I don’t know if we should apply together or separate?Should I apply At my bank that has access to all of my income statements or his credit union ? What is the likely hood of us getting approved ? Should I wait until after I file taxes ?

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rackeya says:

hi, I am 19 and living in toronto.
I am a student in university, and currently on osap.
I need/want to buy a house close to school, but im confused is it possible for me to be pre-approved on a mortgage? does age matter? I have a sufficient down payment. More then enough. but what do you guess think? im going for a condo that is around 100,000 – 185.000 dollars.

thanks

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Yaima says:

Hello,I’m 25 my fiance and me are trying to save for our first app德扑圈官方网址home, he is 24 and his income is around $7,000 a month and his credit is between 630 to 700, he just start this job like 3 months ago and he is getting check but they are not taking taxes out, he will have to do it at the time of his taxes. his 2010 income was around $14,000 i was his dependent because for my pregnancy i wasn’t working. My credit is really bad,we repo and all that due to co-signing for another people. Is his income good enough for a app德扑圈官方网址home approval? what is the lower income approval for the bank?

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Holly says:

Say BYE BYE to all your CREDIT CARDS…. they are EVIL!!! I am doing the Dave Ramsey Financial Peace course and I agree that everything should be paid for in CASH…. unless its a mortgage, and then it should be a 15 year loan. Credit cards get people in more debt than help them. You can raise your credit score without having a credit card… just pay your bills on time! Its taken me awhile to do this but Im finally working really hard at it. I hope some or all of you check out Dave Ramsey… hes heped my family and a few friends achieve what we want out of life in just a few years… and none of us are even in our 30s yet! But we all have app德扑圈官方网址homes, and newer cars with no payments. We have savings and emergency funds. Its amazing what you can do if you work hard.

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David says:

Dave Ramsey is excellent. Good recommendation.

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Bryan says:

I love Dave Ramsey, but I completely disagree with him on credit cards. Between taking advantage of 0% offers and using different cash back credit cards we made over $500 last year that we would have never seen if we paid cash. And that whole time, we didn’t pay one cent in interest.

If you’re the kind of person who maxes out any credit, then by all means pay them off and close them out, but if you are moderately financially responsible (which, let’s face it, you have to be to follow all the rest of Ramsey’s teachings), then credit cards are an excellent tool.

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Linda says:

What percent of people who get pre-approved get final approval? My husband and I were pre-approved for $250K. We found a house for $245K. We gave the bank all of our information prior to the pre-approval. Now they say they aren’t sure if we’ll be able to get the house. What gives? We haven’t taken out any new debt and they knew our numbers going in.

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Bonnie says:

Hi, me and my fiance are getting married June 30, 2012 and we’re looking to rent an apartment. I, however, want to buy a house. Neither one of us have credit and we are both 20 years old. Currently I am the only one working, but he is supposed to be getting a job that pays about 13+ and hour within a week or two. I want to be in a house by the time we get married. Is this at all possible or do we still have a long way to go? And how in the world am I supposed to get credit?

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Ladylike says:

Credit cards and save save save!

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Holly says:

Credit cards dont help people… society has made us think we NEED them… when in reality we dont.

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Jenny says:

Hi Bonnie,
I’m kind of in the same boat as you are too and I would love an answer from this question. And I just thought it was a cool thing that me and my fiance’ have the exact same wedding date and you and yours.

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Julie Eden says:

hi, I am 25, my dad purchased a app德扑圈官方网址home for me and the documents are on my name, and the income from the property being rented is more than enough to cover the mortgage, insurance, taxes, and utilities, along with some minor repairs.

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Helen says:

So? You still can’t get a man…

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Paula says:

I am 29 and my husband is 54 and we are waiting for a response on our own mortgage application and very eager. to kayla above, bank any money you can save. wait a while so see if your bf will be the one to get a 30 yr mortgage with (trust me)keep good credit, tell bf to start with a secure credit card. Jason – without a decent size income a bank will not touch you.Your 21 , get a second job for a year or two and then look into investment property. You cannot enter the housing/commercial market with out income of your own. everyone good luck in your endeavors.

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Jason says:

I am 21 years old and looking to purchase an investment property. I found a app德扑圈官方网址home that I would like to buy and I am looking for a $100,000 loan. Asking price is only $84,000, but I would like the extra in case of needed emergency repairs. The property is safe for the first year because it already has a lease on it, however I am not sure how I can make the bank take me seriously because in my current situation I have very little personal income. I do however have no living expenses what so ever. My credit score is 738, but I have very little credit history, and only a $1000 limit credit card. I have $10,000 saved up for a down payment, and the income from the property being rented is more than enough to cover the mortgage, insurance, taxes, and utilities, along with some minor repairs. I am just wondering what I would be able to do to make a bank take a college student seriously?

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Andrew says:

Jason, I’m in the exact situation as you. I’m 22 and will be moving to Chicago for my girlfriend to go to medical school. I have been looking on Craigslist and a few other places for houses to buy and either repair/upgrade and flip or rent out. I’d love to talk with you further and see what we can do to help each other out. I have determined that the bank route will not be the way to go, although my credit is pretty much the same as you (I think I’m at 720), however I do not have anywhere close to $10k saved. I believe the best (and probably only) way to get the funds needed to do something is through private hard money lenders. I have 3 or 4 friends together who are ready to plunk down $50k (total) with me in exchange for a 6 month loan at around 15%-20%. If you are still on this thread, give me a response and we should talk.

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Ben says:

Hi Andrew. I know this is an old thread, but I’m in the same place and would love to hear how you proceeded. Hit me up if you have some time!

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dana says:

My husband and i are hoping to buy a app德扑圈官方网址home sooner rather. His credit is horrible, mine is great, but, while i make good money, most is cash, i only claim a small amount on my taxes. I am wondering what do people in my situation do? (waitresses, nanny’s, bartenders, etc). We have saved up enough for a 20% deposit, but are wondering if that is enough considering our situation.

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Tara says:

I’m in the exact, well extremely close to, same boat. I’d love for an answer to this question!!

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j.d. says:

You could just pay taxes like an honest citizen.

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David says:

Pay your taxes, have some integrity.

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Invesion says:

The best thing for you to do is start saving for a downpayment and get your boyfriends poor credit back up to average or high. This can be done through make payments on time, paying down credit cards, and things along those lines.

Also, I your situation I would be very careful what you dive into. A house for under $450 may come along with several costly repairs at anytime. Also, co-signing a place for both of you can be very risky in case you break up or one of you loses a job, etc… Anyways, I would hold off for at least a few years. Good luck!

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Kayla says:

Hi, I’m 18 years old from Warren, Ohio and wanting to buy a house. My fiance and I currently rent a app德扑圈官方网址home. As I have found out the hard way renting is a lot more expenisive then buying and I also feel by renting I’m throwing my money away into a blackhole I’ll never see again. I am also in a pickle, our rent is 450 dollars a month, I recently talked to a real estate agent over the phone who informed me that I could be owning my own app德扑圈官方网址home and paying way less then 450 a month for the size app德扑圈官方网址home we were renting! I’m engaged to my 25 year old boyfriend, who unfortunalty has horrible credit from his previous relationship. I on the other hand am 18 with no credit, which is almost as bad as no credit! I have nothing saved for a down payment, and I have no credit. Is there anything I can do to help my situation, Please help me, we really want to be app德扑圈官方网址home owners!!!

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