How To Get a Mortgage in 2023: 4 Step Guide Roger Odoardi Reviewed by: Jason Caruso The real estate housing market is constantly changing, making it tough to decide when to make a move. Should I buy a house now? That is the first of many questions you’ll ask yourself during the process. Home buyers have been battling a seller’s market with high prices and low inventory. Following a several-year plateau, the price of U.S. homes dramatically increased in 2021 and 2022, largely because of the low cost of borrowing. The average sale price of a new home in 2020 was $391,900. By 2022 that figure reached $543,600. Interest rates have created another hurdle, peaking last year at 7% on a 30-year mortgage in November, according to Zillow. Just a year prior, Freddie Mac reported a dip to 3% in December 2021. Expert opinions vary regarding the 2023 housing market forecast, but here is some key information to help you navigate the steps to get a mortgage. Step 1: Consider Your Finances Lenders consider several financial factors. Employment status and income are at the top of the list. You’ll want to have a steady job for at least two years when you start the home buying process. Your debt-to-income ratio (calculated by dividing your monthly debt payments by your gross monthly income) is an important indicator of how reliably you pay back debt. While keeping that number low, you’ll want to boost your credit score as high as possible. Many, but not all, mortgage lenders look for a score of at least 620. Step 2: Know Your Options Different loans suit different buyers, and brokers are always available to make the process less daunting and answer any questions you may have. Fixed rate mortgage loans have options based on the loan period: 10-year, 15-year and 30-year. A shorter loan period means a lower interest rate but higher monthly payments. The most common type of loan, called a conventional loan, has more stringent requirements because it is not government-backed. You could be eligible for a Federal Housing Administration (FHA) loan if your credit score is on the lower side — at least 580. There are no income requirements to qualify for an FHA loan, but the home you finance must be your primary residence. A common misconception is that you will need enough cash for a 20% down payment. But with an FHA loan, down payments can be as low as 3.5%. Some options through the U.S. Department of Veterans Affairs (VA) require no down payment. The same is true for rural and suburban home buyers who qualify with the United States Department of Agriculture (USDA). Be sure to factor in the cost of Private Mortgage Insurance (PMI) required with federal borrowing. Step 3: Gather Your Paperwork We have created a complete mortgage document checklist, but here are a few items to start with: Two forms of ID (driver’s license, social security card, passport) Pay stubs from the past 30 days W2 documents from the past two years Bank statements for the last two months (including checking, savings, mutual funds, money markets, 401K or other retirement funds) Step 4: Work Toward Approval With Your Loan Officer Your mortgage team will communicate with lenders to find the best rate for you. Conversations are based on more than just how much you can put toward your monthly payment but also what you’re comfortable with to support the rest of your expenses. You will receive a loan estimate with state and federal disclosures within three days of applying. It will itemize the rates and mortgage fees associated with your loan, including inspections, title insurance and taxes. The breakdown will give you a clear picture of what you will pay at closing and for the loan term. What to Expect in the 2023 Housing Market Now that you’re familiar with the process of getting a mortgage, the climate of today’s market is crucial in your home buying journey. Zillow Senior Economist Nicole Bachaud expects rates to stay higher than pandemic-era lows for the foreseeable future. Her prediction is “somewhere around the upper 5s to mid 6s.” Buyers today are not forced to act as quickly for fear of missing out on a sale. The median time a house was on the market in January 2023, from listed to pending sale, was 31 days. The January prior saw a much quicker turnaround at only 9 days. In January 2020, just before the pandemic hit, the average was 42 days. Because homes are selling more slowly, inventory is up; good news for buyers. However, compared to the pre-pandemic market, the supply is still relatively low. Inventory is down almost 42% compared to 2019, Zillow says. Some experts anticipate housing market conditions to continue to shift in favor of buyers by the end of 2023. FAQ How Do I Improve My Credit Score? A strong credit score helps your chances of getting a mortgage. Here are some ways to improve: Keep your credit card balance low when possible Maintain a credit utilization ratio less than 30% Only open a minimum number of credit cards Pay balance on time Remember, it is not too late to repair poor credit. How Much Do I Need To Save For a Down Payment? Many people think buying a home is out of the question without ample cash to put down at closing. That is no longer true. Various federal assistance programs exist to help; especially for first time home buyers. In some cases, down payments are not necessary or as low as 3.5%. However, in the case of FHA and USDA loans, mortgage insurance must also be factored when calculating monthly costs. What Does It Mean To Be Pre-Qualified? Getting pre-qualified is a simple, low-risk step into the home buying process. There is no commitment, and this step is a good start for anyone considering if now is the right time to get a mortgage. Is Being Pre-Qualified the Same as Pre-Approved? No, being pre-approved carries more weight and indicates that a buyer has provided documentation to prove they are qualified for a mortgage. Being pre-qualified only indicates the size of the loan you may be granted. How Do I Know Which Loan Is Right For Me? When choosing a loan source, it is important to find out what your total payment will be. The amount borrowed, interest, taxes and homeowners insurance must all be factored in. In some cases, Private Mortgage Insurance (PMI) is also required. You Have Questions, We Have Answers It’s natural to have questions about the home buying process, whether you’re a first time buyer or experienced investor. Explore some of the most common questions when you DOWNLOAD THE E-BOOK Roger Odoardi Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.