For most Americans, taking out a mortgage makes buying a home possible. Obtaining this sort of financing — never a stress-free procedure — has gotten even more stressful of late, given the lightning rise in mortgage rates. You might even wonder if it’s still possible to qualify for a mortgage and buy a home.

Don’t fret: Getting a mortgage can take some time and effort, but we’re here to help. This guide to getting a mortgage breaks down every step of the process so you’ll know what to expect.

What are mortgage lenders looking for?

Mortgage lenders, like any lender, want reassurance that you will pay back the money that you borrow. That means they’re looking for reliable, creditworthy applicants with sufficient income, consistent repayment histories and manageable levels of debt. Safe bets, in other words.

They’re also looking at the value of the property you want to buy, making sure it’s worth enough to serve as collateral for your new loan.

Factors that go into a lender’s decision on whether or not to approve your mortgage application include:

• Credit score. If your credit history shows a pattern of reliable repayments, low credit utilization, a good mix of credit accounts and a reasonable number of credit inquiries, you probably have a credit score that will earn you one of the best interest rates. It is possible to get a mortgage with a low credit score, though, so don’t rule out homeownership before talking to a lender about your situation.

• Income and employment. How much money you’re bringing in and a steady work history are key factors in mortgage approval. Stable employment and income high enough to afford the monthly payment will help you qualify for a mortgage.

• A low DTI. Everyone has debts; the key, as far as lenders are concerned, is how your obligations stack up against your earnings, a figure known as a debt-to-income (DTI) ratio. If your debts make your DTI ratio too high, you may have trouble qualifying, even if you have a healthy income: the lender might doubt your ability to manage the monthly payments.

• Assets. Your lender will want to look at how much is in your bank account and how much any other assets (like a second home or investments) are worth.

Steps for getting a mortgage

Step 1: Strengthen your credit

A robust credit score (in the 700s, preferably) demonstrates to mortgage lenders that you can responsibly manage your debt. “Having a strong credit history and credit score is important because it means you can qualify for favorable rates and terms when applying for a loan,” says Rod Griffin, senior director of Public Education and Advocacy for Experian, one of the three major credit reporting agencies.

If your credit score is on the lower side, you could still get a loan, but you’ll likely pay a higher interest rate.

To improve your credit before applying for your mortgage, Griffin recommends these tips:

• Make all payments on time and reduce your credit card balances. Your payment history on your report goes back two years or longer, so start now if you can.
• Bring any past-due accounts current, if possible.
• Review your credit reports for free at AnnualCreditReport.com. Check for errors on your credit reports, and contact the reporting bureau immediately if you spot any. An error might be a paid-off loan that hasn’t been recorded as such, or an incorrect address, for example.
• Check your credit score (often available free from your credit card or bank) at least three to six months before applying for a mortgage. When you review your score, you’ll see a list of the top factors impacting it, which can tell you what changes to make to get your credit in shape, if needed.

If your score isn’t the strongest, there are financing options, such as FHA loans, that can offer approval for people with scores as low as 580 or even lower.

Step 2: Know what you can afford

It’s fun to fantasize about a dream home with every imaginable bell and whistle, but it’s much more practical to purchase only what you can reasonably afford. Rising interest rates make monthly mortgage payments even higher, so you might have to adjust your expectations (if not your budget) to find an affordable home.

Katsiaryna Bardos, finance department chair at Fairfield University in Fairfield, Connecticut, says one way to determine how much you can afford is to figure out your debt-to-income ratio (DTI) — a criterion lenders often look at, as noted above. DTI is calculated by summing up all of your monthly debt payments and dividing that figure by your gross monthly income.

“Fannie Mae and Freddie Mac loans accept a maximum DTI ratio of 45 percent. If your ratio is higher than that, you might want to wait to buy a house until you reduce your debt,” Bardos suggests. Many financial advisors recommend keeping the ratio closer to 36 percent, especially for conventional loans (that is, non-government ones).

Even with the 45 percent threshold, the lower your DTI ratio, the more room you’ll have in your budget for expenses not related to your home. That’s why Andrea Woroch, a Bakersfield, California-based personal finance and budgeting authority, says it’s essential to take into account all your monthly expenses and your set-asides for far-off plans.

“The last thing you want to do is get locked into a mortgage payment that limits your lifestyle flexibility and keeps you from accomplishing your goals,” Woroch says — a condition known as “house poor.”

You can determine how much house you can afford by using Bankrate’s calculator, which factors in your income, monthly obligations, estimated down payment and other details of your mortgage.

Step 3: Build your savings

Your first savings goal should be: enough for a sufficient down payment.

“Saving for a down payment is crucial so that you can put the most money down — preferably 20 percent to reduce your mortgage loan, qualify for a better interest rate and avoid having to pay private mortgage insurance,” Woroch explains.

It’s equally important to build up your cash reserves. One rule of thumb is to have the equivalent of roughly six months’ worth of mortgage payments in a savings account, even after you fork over the down payment. This cushion can help safeguard you if you lose your job or something else unexpected happens.

Also, don’t forget closing costs, which are the fees you’ll pay to finalize the mortgage. They typically run between 2 percent to 5 percent of the loan’s principal. They don’t include escrow payments, either, which are a separate expense. Generally, you’ll also need around 1 to 4 percent of the home’s price for annual maintenance and repair costs.

Step 4: Compare mortgage rates and loan types

Once your credit score and savings are in an adequate place, start searching for the right kind of mortgage for your situation. You’ll also want to have an idea of how mortgages work before moving forward.

The main types of mortgages include:

• Conventional loans – These are best for homebuyers with solid credit and a decent down payment saved up. They’re available at most private lenders: banks, credit unions, independent mortgage companies.
• Government-insured loans (FHA, VA or USDA) – These can be great options for borrowers who do not qualify for a conventional loan or who meet specific criteria, such as being a member of the military for a VA loan.
• Jumbo loans – These loans are for more expensive properties, whose price tags exceed the federal threshold set for ordinary, aka conforming, loans ($726,200 in most parts of the country or $1,089,300 in more expensive areas). If you need to finance more than that for your dream home, you’ll need to get a jumbo loan from a commercial lender.

Look at the interest rates and fees for each loan, which collectively amount to its annual percentage rate (APR). Even a small difference in interest rate can result in a big savings over the long run. Also consider things like whether you’ll have to pay for mortgage insurance, and for how long.