Own Up
How it worksAbout

Learning Center

The know-how you need to navigate home financing.

Explore our learning center

Affordability Calculator

Learn how much home you can afford, and the next steps to take in the process.

Affordability calculator

Rate Range Finder

Get the range of rates for your borrowing scenario across thousands of lenders.

Find your rate range

For Realtors

Learn how Own Up can save your clients time and money.

Learn more


Your Mortgage Approval Roadmap

Written by:  

Mike Tassone

Mike is a Co-Founder and Chief Operating Officer of Own Up. He has expertise in all areas of residential lending, having led operations for a top 40 lender in the United States.

See full bio

Your Mortgage Approval Roadmap

Buying a home is typically the biggest financial transaction in one’s life and the home loan approval process can be a stressful experience, but it doesn’t have to be. Like most financial transactions, if you go into the process knowing exactly what will be required, the experience can actually be pretty painless. The objective of this article is to cover the steps in the process starting with the submission of your application to a lender.

Once you’ve submitted your application, assuming your lender has already requested your credit report as part of the pre-approval process, the lender will issue you disclosures that detail the terms of your transaction like loan amount, interest rate and closing costs. The lender will then order an appraisal of your property to obtain an objective opinion of the property’s market value, taking into account recent comparable sales and an onsite inspection of the subject property. It can take a few weeks for the lender to receive the appraiser’s report, but meanwhile, they will begin reviewing your application and requesting supporting documentation from you.

At a minimum, you should expect to provide two recent paystubs, your two most recent W2s, two months worth of bank statements, your most recent tax return and copies of any existing mortgage statements and property tax bills. If you own a business or work as a contractor, you will likely be asked to provide business tax returns for the two most recent years, 1099s and other documents such as K1s.

The lender evaluates these documents to assure that you have both the assets to afford your down payment, the ongoing income to support the mortgage principal, interest, taxes and insurance (PITI) along with your other existing debts and enough money left over after your down payment, referred to as “reserves”, in the event you unexpectedly experience a drop in your current income and need to rely on these funds to make your payments.

It’s helpful to segment your application into the key areas a lender will examine:

Your Credit

Your lender extracts two key pieces of information from your credit report. The first is your credit or FICO score. This is a score that ranges between 300–850 that summarizes your debt repayment history. A lender will usually get your score from the three major credit bureaus and utilize the middle score to determine eligibility. For example, if your credit scores are 770, 780 and 790, the lender will base their credit decision on a credit score of 780. Borrowers with scores above 700 are generally eligible for the best interest rates.

Your lender will also look at your monthly debts or “tradelines” and compare these to your monthly debts to help determine how much money you will have each month to service your new mortgage and any existing debt.

Home image

The Collateral

With residential loans, the lender’s collateral is a security interest in the property you are purchasing. This provides the lender protection in the event you fail to pay your loan back on the agreed upon terms because the security interest gives the lender the right to take ownership of your property in the event of default.

The value of your property or collateral will be determined by the appraiser and this value will be used to determine how much money you will be required to contribute as a down payment and how much the lender will loan you. For example, some lenders will only lend up to 80% of the appraised value of a property, requiring a 20% down payment. Other loan programs are available to support as little as 3% down payment.

Your Capacity to Repay: Income (and Debt)

Lenders calculate your income by summing your total monthly income sources. These may include base salary, bonus, commission, dividends, pension income, annuities and rental income. However, all income sources other than base salary require a demonstrated history (often 1–2 years) and a likelihood to continue. A lender will then sum all of your monthly debt payments, including the PITI on the property you are purchasing or refinancing and divide this sum by your monthly income. The result is your debt-to-income ratio or DTI.

For most all lenders, a DTI below 43% is considered approvable. DTI’s above 43% but below 50% may be approved by your lender, but these are considered higher risk loans and often require compensating factors, such as a large down payment or a high FICO score.

Approved Home image

Your Assets

Assets include your checking and savings account balances (liquid assets) and items like stocks, bonds, mutual funds and retirement accounts (illiquid assets). Your lender will review your assets to determine that you have the cash to cover your downpayment and enough remaining assets in reserves. Lenders typically like to see 3–6 months of PITI in reserves, which provide coverage in the event you were to lose your job or experience an unexpected drop in income.

Large Deposits

If you have any deposits to your bank account that exceed 50% of your monthly gross income, your lender will want you to “source” these deposits. This simply means you need to provide documentation of where the funds came from and their purpose. Lenders require this to assure that you are not taking on any additional debt to fund your down payment.

Gifts of Equity

Receiving a gift towards your down payment can also add to the complexity of a loan file. In most cases, gifts must come from a relative and be sourced similar to any large deposits. Depending on the amount of your down payment and the specific loan program you are applying for, you may be limited to how much of the down payment can be in the form of gift. However, most lenders will allow for the entire down payment to come in the form of a gift if you are putting down 20% or more.

While each borrower and loan file is unique there are certain elements that are consistent across nearly all borrowers. It is impossible to address every single aspect of every person’s loan, but use this as a roadmap to getting your loan approved.

Ready to see how much you can save on you’re mortgage?


See What You Qualify For

See What You Qualify For


© RateGravity Inc. DBA Own Up. All rights reserved. 2012-2024
NMLS: #1450805 · NMLS Consumer Access

The information provided to you in Own Up blog is intended to be for general informational and educational purposes only and does not constitute legal or tax advice. This blog is not a substitute for obtaining legal or tax advice from a qualified professional. The views and opinions expressed on this blog are solely those of the authors and do not necessarily reflect the official policy or position of Own Up or describe Own Up's business model. Own Up makes no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog or the information, products, services, or related graphics contained on the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk.