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Comprehensive Lending Guide Bookmark Site

Mortgage Lending Steps

(you can learn more - links scroll to information below)
home loans tips Step 1:
  Step 2:
  Step 3:
  Step 4:
  Step 5:
  Step 6:
  Step 7:
  Step 8:
  Step 9:
  Step 10:
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Mortgage Lending Step 1:

Start With a Good Credit Standing

Applicants with a good credit report will be in a stronger position to negotiate best rate and terms

Your credit report is used by banks and other lending institutions to determine your creditworthiness. The report can be a factor in a lending institution's decision to approve or decline your mortgage application.

You should review your credit report for any errors before submitting your mortgage application.

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Mortgage Lending Step 2:

Calculate How Much Home to Afford

Your home purchase should be in the income range that you can afford

You need to analyze how much house you can afford before blindly submitting an application with too high of a mortgage amount.

  • Use our calculator for a quick estimate on how much home you can afford

    Note: applicants living in markets where home prices are high will consider minimum-payment mortgage plans to be within their income affordability range


The true cost of a mortgage loan includes the loan payment, taxes, insurance and other related charges

Additional monthly costs such as real estate taxes, hazardous insurance, and other home ownership related fees can add to your total monthly payment and reduce the amount of home your can afford.

Many times buyers ignore these costs when figuring how much of a home they can afford. These costs are considered in your capacity ratios that lenders use to approve your mortgage application.

View more information about escrow payments:
click here for information about escrow payments


How Much Down Payment and Closing

How much of a down payment do you have? Most lenders require at least 5% of the home purchase price (unless you qualify for government sponsored programs).

But to avoid Private Mortgage Insurance (PMI), which can add to your total monthly cost, you will need at least 20% down.

Your down payment can be in the form of cash or the resale equity value of a prior home.

Analyze your down payment position: click here

Also consider your available funds for closing and settlement. Closing costs can average about 3-7% of the purchase price.

We have more information about closing costs

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Mortgage Lending Step 3:

Add Up the Numbers

Now let's add up the numbers.

This will help figure what parameters you need to change to fit within your budget and income ratios.

Calculation Notes:
the amount of available cash / equity is the cash you have on hand for your down payment and closing costs. Equity refers to the resale equity value of your existing home if any, that will be available to you once you sell your home.

  • Closing costs is calculated as percentage of the estimated purchase price of the home — this percentage can range between 3-7% depending on your location and number of points.
  • The American Housing Survey shows that the median taxes paid averaged $10 per $1,000 in home value. The property insurance paid averaged $30 per month.
  • You can lookup your property tax assessments by community:


Any percentage LTV that is greater than 80% may require private mortgage insurance, which can add to the total cost of your loan — if your LTV% (calculated below) is greater than 80%, enter 0.005 in the PMI field and recalculate

you can find information about PMI

Estimated Purchase Price of the Home:

Enter the Cost per $1000 for Property Tax:

Amount of Available Cash / Equity: Enter the Monthly Cost for Insurance:
Allocated Percentage for Closing Costs: Enter 0.005 for PMI if LTV% is greater than 80%:

Enter your home mortgage loan rate (APR):

Click for sample rate information


Enter the number of months to repay:
Amount Allocated for Closing Cost: $
Amount Available for the Down Payment: $
Mortgage Loan Amount to Borrow: $
Borrowing Percent of LTV%: %


Monthly Mortgage Payment:

Monthly Taxes:
Monthly Homeowners Insurance:
Monthly PMI:
Total Estimated Monthly Payment: $

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Mortgage Lending Step 4:

Analyze Your Capacity to Repay

Your capacity to repay your mortgage loan is a key factor for lender approval

Your capacity to repay the mortgage loan is a key factor that lenders use to qualify you for a mortgage loan. These ratios determine the level of debt you can consume based on the amount of income you have.

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Mortgage Lending Step 5:

Pre-Qualify for a Mortgage

Loan pre-qualification will strengthen your negotiating position with the seller

Ask at least one lender to pre-qualify you for a mortgage.

There is no obligation on you to obtain a loan from that lender, nor does it obligate the lender to provide a mortgage loan.

The lender will analyze your credit position, current income, and outstanding debts to give you a reasonable estimate of your borrowing amount.


You may begin your pre-qualification search through our national network of lenders and brokers:

click for the mortgage application

Note: before you begin your lender search, have on hand the mortgage comparison sheet to keep track of your loan quotes:
open and print the mortgage comparison sheet

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Mortgage Lending Step 6:

Understand the Mortgage Process

We have a number of important notes that will summarize the mortgage lending business:

mortgage 101:
review how mortgage loans work and the players in the mortgage lending business

understanding escrow:
review the total cost of a mortgage loan and calculate escrow payments

getting qualified:
discusses the parameters lenders use to qualify an applicant for a mortgage

mortgage management:
discusses how to manage your mortgage loan with tips on prepaying your mortgage early

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Mortgage Lending Step 7:

Review Mortgage Lending Products

Which mortgage loan fits your financial objectives?

There are fixed rate loans, adjustable loans, special financing loans, and a number of mortgage loan variations. We have notes on each one of them.

Empower yourself with knowledge to see which one will work for you:

fixed-rate loans:
fixed 30-Yr and 15-Yr loans

adjustable rate loans:
adjustable rate mortgages and notes on the components

hybrids / combo loans:
combination of fixed rate and adjustable rates

view this complete line of mortgage loan products

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Mortgage Lending Step 8:

Shop Mortgage Lending Rates

Mortgage rates change daily.

Sample of the average national weekly rates posted every Thursday by Freddie Mac:


The quoted rate you see may not be the actual rate you receive.

Your actual mortgage rate will be determined by your overall credit score, your credit ratios, your location, and your negotiation skills to shop best rate.

Search rates and view negotiating steps for best rate and term:
shop mortgage interest rates

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Mortgage Lending Step 9:

Submit Application and Compare Lenders

You are now ready to submit your mortgage application
with the confidence to negotiate best product and terms.

Three important notes:

  1. what information you will need
    to finalize your mortgage application:
    see our notes

  2. download lender comparison sheet:
    use this sheet to shop and compare lenders:
    open lender comparison sheet

  3. submit your request to multiple lenders
    (view our lender network)

    use our nationwide network of lenders to negotiate best rate and term: start your mortgage application

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Mortgage Lending Step 10:

Finalize Application and Go to Closing

Once you submit your application, compare the offers and terms from multiple lenders.

You should have at least 3-4 offers.

  • Select 2-3 lenders of your choice and begin negotiating best rate, terms, points, and closing costs. Consider the various mortgage loan products to design a mortgage plan that works for you.

  • Depending on your credit strength, you can negotiate a reduction in rate or points, closing costs, terms, penalty clauses, etc. If you have a strong credit rating, lenders will work hard to keep your business.


We have information about negotiating tactics: click here

After you select and sign the lending agreement with your lender of choice, your lender (or closing agent) will arrange closing where the title ownership of the home transfers to you.

We also have information about closing and settlement:
click here for closing and settlement

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Mortgage Loan Application