First-Time Mortgage Application: Pre-Approval to Closing
Get your first mortgage without overpaying in interest or getting blindsided by fees. Covers credit preparation, pre-approval, rate shopping, the application process, underwriting, and closing — written for US first-time buyers.
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Credit Preparation
Pull your credit reports from all 3 bureaus
Get free reports at annualcreditreport.com. Lenders use the middle of your 3 scores. A 740+ score qualifies for the best rates. Each 20-point drop below 740 adds roughly 0.125-0.25% to your interest rate — costing $20,000-$50,000 over a 30-year loan.
Review each report for errors, outdated accounts, and fraud
Dispute any errors with the bureau (allow 30-45 days for resolution)
Pay down credit card balances below 30% utilization
Credit utilization (balance divided by limit) accounts for 30% of your score. Dropping from 50% to under 10% can boost your score 40-80 points in 1-2 billing cycles. Pay down cards with the highest utilization first. Do not close old cards — the available credit helps your ratio.
List all credit cards with their balances and limits
Pay down the highest utilization cards first
Request credit limit increases on cards with good standing
Stop applying for new credit 6 months before your mortgage application
Every new credit inquiry drops your score 5-10 points. New accounts lower your average account age. Lenders flag recent credit applications as a risk. Avoid new credit cards, car loans, store financing, and even new cell phone contracts.
Pay all bills on time for at least 6 months straight
Payment history is 35% of your credit score — the single largest factor. One 30-day late payment can drop your score 60-100 points. Set up autopay minimums on every account as a safety net, then pay the full balance manually each month.
Avoid large deposits or withdrawals without documentation
Lenders scrutinize your bank statements for the last 2-3 months. Large unexplained deposits (gifts, cash sales, transfers) raise red flags. If you receive a gift for the down payment, get a signed gift letter from the donor stating it's not a loan.
Getting Pre-Approved
Understand the difference between pre-qualification and pre-approval
Pre-qualification is a rough estimate based on what you tell the lender — it carries no weight. Pre-approval involves a hard credit pull, income verification, and document review. Sellers take pre-approval letters seriously; pre-qualification letters mean nothing in a competitive market.
Gather all required documents
Last 2 years of federal tax returns (all pages and schedules)
Last 2 years of W-2s or 1099s
Last 30 days of pay stubs
Last 2-3 months of bank statements (all pages, all accounts)
Last 2-3 months of investment and retirement account statements
Government-issued photo ID
Proof of additional income (alimony, rental income, bonuses)
Self-employed borrowers need 2 years of business tax returns, a current profit-and-loss statement, and sometimes a CPA letter verifying business viability. Lenders average your last 2 years of income — if income dropped last year, your qualifying amount will be lower than expected.
Last 2 years of business tax returns
Year-to-date profit-and-loss statement
Business license or proof of business existence
Apply for pre-approval with at least 3 lenders
All mortgage credit inquiries within a 45-day window count as a single inquiry on your credit report. Apply to a traditional bank, a credit union, and an online lender on the same day. Compare: interest rate, APR (includes fees), lender fees, and estimated closing costs.
Apply with a traditional bank
Apply with a credit union
Apply with an online mortgage lender
Choosing the Right Loan
Compare loan types and pick the one that fits your situation
Conventional loans: 3-20% down, best rates with 740+ credit. FHA: 3.5% down, 580+ credit, requires mortgage insurance for the life of the loan. VA: 0% down, no PMI, for veterans and active military. USDA: 0% down, income limits, rural/suburban areas only.
Check VA loan eligibility if you have military service
Check USDA loan eligibility if buying in a qualifying area
Decide between 15-year and 30-year terms
A 30-year loan has lower monthly payments but costs far more in interest. On a $300,000 loan at 7%: 30-year payment is $1,996/month (total interest $418,527). 15-year payment is $2,696/month (total interest $185,367). The 15-year saves $233,000 in interest but requires $700/month more.
Choose between fixed-rate and adjustable-rate
Fixed-rate locks your rate for the entire loan term — predictable and safe. Adjustable-rate mortgages (ARMs) start lower but adjust after 5, 7, or 10 years. An ARM makes sense only if you plan to sell or refinance before the adjustment period. If rates rise, your payment can increase by hundreds of dollars.
Compare Loan Estimates from each lender side by side
By law, lenders must provide a Loan Estimate within 3 business days of application. Compare: interest rate, APR, estimated monthly payment, total closing costs, and cash to close. Pay attention to lender origination fees — these vary the most and are the most negotiable.
Compare interest rates and APRs (APR includes all fees)
Compare lender origination fees (0.5-1.5% of loan amount)
Compare total estimated closing costs
Ask about rate lock options and fees
Evaluate whether to buy discount points
One point costs 1% of the loan amount and lowers your rate by about 0.25%. On a $300,000 loan, 1 point = $3,000 upfront to save ~$45/month. The break-even is roughly 5.5 years. Points make sense if you'll stay in the home 7+ years. They don't make sense if you might sell or refinance sooner.
The Application & Underwriting Process
Submit your full mortgage application after going under contract
Once your offer is accepted, submit the full application to your chosen lender within 1-2 days. Your pre-approval started the process, but the full application ties it to a specific property. The lender has 3 business days to send you the official Loan Estimate.
Lock your interest rate
Rates fluctuate daily. A rate lock guarantees your rate for 30-60 days (standard) while the loan is processed. Longer locks (60-90 days) may cost 0.125-0.25% more. Lock as soon as you're comfortable with the rate — if rates drop significantly after locking, ask about a float-down option.
Respond to underwriter requests within 24 hours
The underwriter will request additional documents: explanation letters for credit inquiries, proof of large deposits, updated pay stubs, or verification of employment. Every day you delay extends your closing timeline. Create a shared folder with your loan officer for fast document exchange.
Provide any requested documents or explanations immediately
Do not change jobs, make large purchases, or open new credit during this period
Complete the home appraisal
The lender orders an appraisal to confirm the home is worth the loan amount. Costs $400-$700 (you pay it). If the appraisal comes in below the purchase price, your options are: renegotiate the price, pay the difference in cash, challenge the appraisal, or walk away with your earnest money (if you have an appraisal contingency).
Get homeowner's insurance lined up
Your lender requires proof of insurance before closing. Get quotes from at least 3 companies 2-3 weeks before closing. Annual premiums average $1,500-$3,000 depending on location and coverage. Bundling with auto insurance typically saves 10-15%.
Purchase the policy with an effective date on or before closing
Receive the "clear to close" from underwriting
This means your loan is fully approved with all conditions met. You'll receive the final Closing Disclosure at least 3 business days before closing. Compare it to your Loan Estimate — the interest rate, loan amount, and most fees should match exactly.
Closing Day
Review the Closing Disclosure line by line
Check: loan amount, interest rate, monthly payment (including escrow for taxes and insurance), total closing costs, and cash needed at closing. Certain fees can increase by any amount (per diem interest, escrow deposits). Lender fees cannot increase at all. Third-party fees can increase up to 10%.
Verify interest rate and monthly payment match your rate lock
Check that lender fees match the Loan Estimate
Confirm the total cash needed at closing
Wire your closing funds
Call the title company directly to verify wiring instructions — wire fraud targeting homebuyers is a billion-dollar scam. Never rely on wiring instructions sent via email alone. Wire funds 1-2 business days before closing. Bring a personal checkbook for minor last-minute adjustments.
Call the title company to verify wiring instructions by phone
Wire the exact amount specified on the Closing Disclosure
Confirm the wire was received before closing day
Do the final walkthrough of the property
Sign closing documents
You'll sign 50-100 pages: the mortgage note (your promise to repay), the deed of trust (the lien on the property), and various disclosures. Take your time reading each document. Bring government-issued photo ID. The signing takes 45-90 minutes.
Set up your mortgage payment
Your first payment is typically due 30-60 days after closing. Set up autopay immediately to avoid missing a payment. Your lender's online portal will have the setup option. Verify whether your loan includes an escrow account for property taxes and insurance.
Register for the lender's online portal
Set up autopay for the monthly mortgage payment
Save all closing documents in a safe location
Frequently Asked Questions
How many mortgage lenders should I compare before applying?
The Consumer Financial Protection Bureau recommends getting quotes from at least three to five lenders. Rates can vary by 0.5-1% between lenders on the same day for identical borrower profiles, which translates to $30,000-$60,000 in interest over a 30-year loan on a $350,000 mortgage. All credit inquiries for mortgage shopping within a 45-day window count as a single inquiry on your credit report.
What is the difference between pre-qualification and pre-approval?
Pre-qualification is an informal estimate based on self-reported income and debt — it carries no weight with sellers. Pre-approval involves a full credit pull, income verification, and asset documentation, resulting in a conditional commitment letter from the lender. In competitive housing markets, sellers routinely reject offers that lack a pre-approval letter because it signals the buyer may not secure financing.
How long does mortgage pre-approval take?
Online lenders can issue a pre-approval letter in as little as 24-48 hours if your documents are in order. Traditional banks and credit unions typically take 3-7 business days for the same process. Pre-approval letters are valid for 60-90 days depending on the lender, after which you'll need to resubmit updated pay stubs and bank statements for a renewal.
What debt-to-income ratio do mortgage lenders look for?
Most lenders prefer a total debt-to-income (DTI) ratio at or below 43%, though some FHA and VA programs allow up to 50% with compensating factors like cash reserves. Your front-end DTI (housing costs only) should ideally stay below 28% of gross monthly income. Paying off a car loan or credit card balance before applying can dramatically improve your DTI and unlock better rate offers.
Can I get a mortgage if I'm self-employed?
Self-employed borrowers typically need two full years of tax returns, profit-and-loss statements, and business bank statements to qualify. Lenders average your net income across those two years, so a year with low reported income can reduce your borrowing power significantly. Bank statement loans are an alternative — they use 12-24 months of deposits to calculate income, though they carry higher interest rates (0.5-1% above conventional).