7 Steps to Apply for a Mortgage Online
From knowing your credit score to submitting a completed mortgage application, understanding the documents, timelines and lender expectations can help you feel prepared and empowered to navigate the world of online mortgage applications.
1. Gather Necessary Documents
Lenders need a complete picture of your financial situation before lending you funds for a property. Having copies of the required documents can help expedite the process and show your lender that you’re ready and serious about your application.
Loan applications will typically require the following documents:
- Proof of identification: This can include a driver’s license, passport, birth certificate or other government-issued identification. Some lenders require two forms of identification with your full name, including one with your photo.
- Tax information: Prepare the previous two to three years’ tax returns and W2 forms. The IRS can provide you with copies of your tax returns upon request and your employer can issue copies of your W2s.
- Income information: Lenders want to ensure you have a steady and sufficient income. If you have traditional employment, gather your last few pay stubs to show proof of your current income. You should also download the last few months of your bank statements to give lenders a snapshot of your cash flow.
- If you are an independent contractor or freelance worker, lenders prefer you earn income steadily in the same industry for at least two years. Business owners should be prepared to provide additional documents, such as their business and personal tax returns, business licenses, proof of client relationships and even profit and loss statements.
- Other forms of income, such as child support and alimony, can also be considered when applying for an online mortgage, assuming you expect the payments to continue for a few years. You’ll want to gather information about these payments and any court orders proving that the funds will continue.
- Debt and asset information: Providing information about your current debt obligations (e.g., property, vehicles, personal loans, credit card debt etc.) and assets (e.g., cash, cash equivalents, real estate, retirement accounts, vehicles, valuables etc.) can provide lenders with an accurate picture of your financial stability.
Having these documents ready before you start your application can save you both time and frustration.
2. Research Types of Mortgage Loans and Programs
There are numerous home loan types and programs available to borrowers — each offering its own unique features and eligibility requirements. A few of the most common mortgage loans are conventional, FHA, VA and USDA loans.
These loans are not a part of any sort of government program, but instead are funded by private lenders. Most are conforming loans, which have limits of $726,200 in most counties (some higher cost-of-living counties allow for higher loan amounts).
Conventional loans typically require you to have a minimum credit score of 620 — though lenders prefer a score over 740, which can get you better loan rates and terms. A debt-to-income (DTI) ratio — your monthly debt obligations compared to your monthly income — of less than 50% is also typically required, and lenders prefer a DTI ratio closer to 30%.
These loans require some sort of down payment from you, which can be as low as 3%. Any down payment of less than 20% will require you to pay private mortgage insurance (PMI). PMI is an additional payment — typically about 0.2% to 2% of the loan amount — tacked onto the mortgage payment. You will need to pay this until you reach 20% equity in your home.
These government loans are backed by the Federal Housing Administration — a section of the U.S. Department of Housing and Urban Development. FHA loans typically require lower down payments and closing costs as well as less strict eligibility requirements. First-time homebuyers and borrowers with lower credit scores may find it easier to qualify for these loans compared to conventional loans.
These loans are backed by the U.S. Department of Veteran Affairs and are available for certain active-duty military personnel, veterans and members of the National Guard and Reserves to purchase or refinance properties. These loans are particularly attractive because they do not require a down payment or PMI and often come with lower interest rates than conventional loans.
This loan program offers 100% financing and is targeted to low- and moderate-income households who desire to own a property in rural areas. Applicants must be American citizens, plan to live in the property full-time, have incomes less than 115% of the median household income and, typically, have a credit score above 640.
These loans do not require you to make a down payment, but they do require guarantee fees, which include an upfront payment equivalent to 1% of the loan and an annual fee, which is about 0.35% of your loan balance. These loans typically offer more competitive rates than conventional loans, but you and the proposed property must meet specific requirements.
3. Compare Online Mortgage Lenders
Consider asking multiple lenders for loan estimates so you can compare options and crucial information, such as:
- Loan type and amount
- Rate types
- Rate quotes
- Loan terms
- Down payment requirements
- Points
- Credits
- Estimated closing costs
- Rate lock periods
You’ll need to provide basic information about yourself and the property you’re hoping to purchase, but gathering loan estimates won’t commit you to any loans or lenders.
Online mortgage lenders can offer more accessibility, flexibility and even lower mortgage rates in some circumstances compared to brick-and-mortar banks. You can also quickly compare loan estimates from multiple lenders in a short time.
Brick-and-mortar banks, on the other hand, can provide a more personalized experience, which can be particularly beneficial if you run into any roadblocks or have questions. However, the potentially higher costs and limited business hours may not suit your needs.
4. Get Preapproved for a Mortgage Online
Getting preapproved can give you a competitive advantage when house hunting because it shows sellers you have a lender conditionally ready to approve you for a certain loan amount.
Each lender will have their own requirements, but in general, you’ll need to provide lenders with identification and information regarding your income (e.g., W2s and pay stubs), debt (e.g., credit card statements and loans) and assets (e.g., retirement account and investing accounts). The preapproval process can take anywhere from a few minutes to several days, depending on the lender. Preapprovals are typically good for 30–90 days.
5. Submit a Complete Mortgage Application Online
When you’re ready to complete the online mortgage process, be sure to submit all the required financial documents as well as information about the property you intend to purchase. Providing accurate and detailed information will help the application process go more smoothly. Your lender should have a secure means of uploading your sensitive personal and financial information versus mailing it in.
Next, you’ll choose the loan product you want, lock in your interest rate and pay any required fees. Before completing your e-signature, carefully read the entire loan agreement and ensure you understand all of the terms and conditions. Once you e-sign, you are legally bound to the loan.
6. Be Available During the Mortgage Underwriting Process
Mortgage lenders use underwriters to verify all of the information you provide for accuracy and legitimacy. Underwriters want to ensure that you have a strong financial history, the financial means to pay your monthly payments and that the property appraises for an amount similar to the loan amount.
The underwriting process can take a few days to a few weeks. You can help shorten the timeline to homeownership by being readily available to answer any questions or provide any additional information or documents.
7. Receive Your Mortgage Funds
The mortgage closing process is an exciting time and can take place in person or online. At closing, you’ll want to review all of the final loan documents including the closing disclosure, purchase agreement, your loan application, the property deed, your proof of home insurance, etc. before signing.
During closing, your lender will disburse the funds from your loan to pay the seller for their property, making your loan active. Your lender will provide you with information about making your first payment, which will include funds for the principal, interest, taxes and home insurance. Ensure you set a payment reminder or automatic payments and enjoy your new home.
The Bottom Line
Applying for a home mortgage online can be fast and convenient, especially if you have all of the required documentation prepped and ready. Getting pre-approved before applying for mortgages can give you a competitive edge and show sellers that you can secure the necessary financing. Comparing multiple lenders before applying can help you secure the most favorable terms and rates.
When you submit your application, ensure that all the information is complete and accurate to avoid unnecessary delays in the underwriting process. Being available to your lender and checking in regularly can help keep communication open and your application moving through the process.
Frequently Asked Questions About Applying for Mortgages Online
The credit score required for an online mortgage depends on the type of mortgage you’re applying for. Most conventional loans require a credit score of at least 620, while FHA loans may only require a credit score of 500. VA loans and USDA loans typically require a credit score of 620 and 640 (or higher), respectively. The higher your credit score, the more likely you are to receive more favorable rates.
The preapproval process for a home mortgage can take about seven to 10 days, while a complete mortgage application process takes approximately 30–60 days. Inaccurate or incomplete information on your application can slow the underwriting process.
This depends on your personal preferences. You can complete an online mortgage from the comfort of your home, at any time of the day, and it can allow you to compare multiple lenders quickly. On the other hand, a brick-and-mortar bank can offer you a more personalized customer service experience.
You’ll need proof of identification (e.g., driver’s license or passport), tax information (e.g., tax returns or W2s), income information (e.g., pay stubs, bank statements, child support or alimony payments) and documentation regarding your debts (e.g., property, vehicles, personal loans, credit card debt etc.) and assets (e.g., cash, cash equivalents, real estate, retirement and brokerage accounts, vehicles, valuables etc.).
Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
If you have questions about this page, please reach out to our editors at editors@marketwatchguides.com.