The Mortgage Approval Process Explained Step By Step

Navigating the mortgage approval process can feel like trying to solve a complex puzzle, especially if you’re doing it for the first time. Whether you’re buying a new home, refinancing an existing loan, or selling a property while behind on payments, understanding the steps involved can make all the difference.

Each stage — from checking your credit to getting pre-approved, to closing the loan — is critical. And in certain cases, like selling a home due to financial distress, it becomes even more urgent to understand how mortgage logistics can affect your decisions.

Selling Your Home When You’re Behind On Payments

Before diving into mortgage approval, let’s address a scenario that surprisingly many sellers face: what happens if you’re trying to sell your home while behind on mortgage payments? This situation often overlaps with the early phases of the mortgage approval process for buyers, especially in a competitive market.

Falling behind on mortgage payments doesn’t automatically disqualify you from selling, but it does change the strategy. First, contact your lender to understand exactly how much you owe — including any late fees and penalties. This total, known as the payoff amount, will be needed to ensure your home sale covers the debt.

Step 1: Check Your Credit And Financial Health

The first formal step in the mortgage process starts with you. Lenders want to see a strong history of financial responsibility, so your credit score, credit report, debt-to-income ratio, and savings are scrutinized from the start.

• Aim for a credit score above 620 for conventional loans, though scores of 740+ often secure better rates.
• Your debt-to-income ratio (DTI) — the percentage of your monthly income that goes toward paying debt — should ideally be under 36%.
• Have at least 2–6 months of savings (called reserves) to cover your mortgage and expenses in case of income loss.
• Request your credit reports early. Errors, unpaid debts, or even outdated information can be corrected — but that takes time. Fixing credit issues before applying improves your approval odds and lowers your interest rate.

Step 2: Get Pre-Approved By A Lender

Pre-approval isn’t the same as pre-qualification — it’s far more formal and reliable. Pre-approval means a lender has reviewed your financial documents and determined how much you can borrow, subject to final approval.

To get pre-approved, you’ll typically need:

• Pay stubs or proof of income (2+ months)
• Tax returns and W-2s (2 years)
• Bank statements (2–3 months)
• Driver’s license or government-issued ID
• Social Security number for a credit check

Once approved, you’ll receive a pre-approval letter stating the loan amount you qualify for. This letter makes you a more competitive buyer and helps real estate agents tailor their search.

Pre-approvals usually last 60–90 days. If your home search extends beyond that, your lender may update your documentation and re-run your credit.

Step 3: Shop For A Mortgage And Choose The Right Loan

Not all mortgages are created equal. This step is about comparing loan types, terms, and lenders to find the most cost-effective and compatible option.

Key types of mortgages include:

• Conventional loans: Best for buyers with good credit and stable income.
• FHA loans: Government-backed loans ideal for first-time buyers or those with lower credit scores.
• VA loans: Available to veterans, often with no down payment required.
• USDA loans: Support rural buyers with income caps and zero-down options.

Compare the interest rates, APR (Annual Percentage Rate), points, closing costs, and prepayment penalties of each offer. A lower rate can save you thousands, but don’t ignore the long-term impact of fees and loan terms.

Use a mortgage broker if you’re unsure where to start — they can shop various lenders on your behalf.

Step 4: Submit A Full Mortgage Application

After choosing your lender, you’ll submit a formal mortgage application, also known as a Uniform Residential Loan Application (Form 1003).

At this point, the lender may ask for updated documentation, particularly if your pre-approval is more than 30 days old. You’ll also be asked to provide detailed information about the property you’re buying, including:

• Purchase agreement
• Address and property type
• Estimated home value
• Down payment amount

You’ll also receive a Loan Estimate within three business days. This document outlines the projected loan terms, interest rate, monthly payment, and closing costs. Compare this estimate with others to ensure you’re getting a fair deal.

Step 5: Go Through Underwriting And Home Appraisal

The underwriting phase is where the lender reviews everything — your finances, the home’s value, and potential risks. It’s the most detailed part of the process and often the most time-consuming.

Two key events occur here:

• Home appraisal: The lender hires an independent appraiser to determine the fair market value of the property. If the home appraises below your offer, the lender may reduce the loan amount. You’ll need to renegotiate with the seller or pay the difference in cash.
• Underwriting review: A loan underwriter will verify your income, debts, credit, employment, and asset documentation. They may request additional information, such as updated bank statements or clarification on large deposits.

If everything checks out, you’ll receive a conditional approval or clear to close notification.

Step 6: Close On Your New Home

Once your loan is approved, it’s time to close the deal. A few days before the closing date, you’ll receive a Closing Disclosure that details the final terms, including:

Total loan amount

• Interest rate
• Monthly payments
• Closing costs
• Escrow deposits
• Any final conditions to fulfill

Before closing, conduct a final walk-through of the home to confirm it’s in the agreed-upon condition. Then, at the closing table, you’ll:

• Sign the loan documents
• Pay closing costs (2%–5% of the purchase price)
• Provide proof of homeowner’s insurance
• Wire or bring your down payment funds

Once everything is signed and verified, the deed is transferred, and you officially become a homeowner.

Wrapping Up

From pre-approval to closing, the mortgage process can take anywhere from 30 to 60 days — and longer if unexpected issues arise. But with preparation, patience, and expert guidance, each step becomes manageable.

If you’re selling your home under pressure — particularly due to late mortgage payments — knowing how the approval process works helps you better time your exit and negotiate with confidence. Whether buying or selling, staying proactive and informed makes all the difference.