How to Get Pre-approved for a Mortgage in 4 Easy Steps
Your dream of buying a home takes a giant step towards reality when you’re ready to be preapproved for a home loan. Let’s start with learning what pre-approval is, and what it isn’t:
Pre-approval is the process in which a lender takes a detailed look at your credit history and financial information to determine how much of a loan you qualify for. Essentially, it’s a conditional commitment from the lender for a certain loan amount.
Pre-approval is NOT the same as prequalification, which merely determines whether you’re a candidate for a mortgage. A pre-approval requires much more information and documentation from the applicant, and much more scrutiny by the lender.
Here’s how to get preapproved for a mortgage as a first time homebuyer:
Before you are a candidate for pre-approval, you will go through the prequalification process. During pre-qualification, your lender will tell you which aspects of your credit and finances are great, and those which are not-so-great.
Depending on how your prequalification goes, you may need to take some steps to improve your credit before applying for pre-approval. Or, you may need to be extra careful not to do anything that jeopardizes your good standing—such as changing jobs or opening a new line of credit.
Try to secure preapproval from a few different lenders. Some factors that differ between lenders are:
- Rates: You may find higher or lower interest rate offers from lender to lender.
- Familiarity with programs: Some lenders may be more well-versed in first time homebuyer programs, while other lenders may be experienced with conventional loans.
- Process: Do you prefer the convenience of getting everything done online or the comfort of personal interaction with your lender? Test the waters and see what works best for you.
You’re going to need SO. MANY. THINGS. Be prepared to wrangle up everything from your driver’s license to your second-grade report card…(ok maybe not that second one). Here’s an overview of what you’ll need:
- Social Security Number: This will be used to verify your identity, pull your credit, and more. It can be verified using your social security card or tax documents.
- Employment Documentation: You’ll need to provide an extensive employment history—most lenders will require at least the last two years. The lender will also work to verify each item in your job history.
- Self-Employment Documents: Being self-employed gives you lots of freedom...until it’s mortgage preapproval time. You may need balance sheets, profit and loss statements, and tax documents.
- Bank Statements: The lender will need to know how much money you have in your savings, checking and money market accounts to ensure you can feasibly pay for your down payment, closing costs, and other fees.
- Proof of Income: You’ll need to provide pay stubs to verify your year-to-date income
- Residence Verification: Your lender will use this to determine your stability. You may also need to provide rent payment receipts.
- Tax Documents: Most lenders will require your W-2 statements and tax returns for the last two years.
- Credit Documents: Your lender may need to see documents related to your auto loans, student loans, etc.
- Gift Letters: This is one request that surprises many first-time homebuyers. If a relative has provided funds to help you with your down payment, you’ll need a letter to verify that the relative doesn’t expect you to pay this money back.
A pre-approval letter is NOT a loan guarantee. While a pre-approval shows a real estate agent and home sellers that you’re a viable buyer, your loan still needs to undergo an intense underwriting process. Furthermore, the lender will typically need to inspect the property your interested in purchasing to ensure it meets their standards. There will be hurdles to jump and many bumps in the road, so hang in there!
With this guide, you can feel confident that you know how to get pre-approved for a mortgage. Reach out to a professional at your trusted local bank for one-on-one information to ensure you’re getting the most out of your mortgage.
- Bev O’Shea (Aug 2019). How to Improve Your Credit by 100 Points in 3 Steps
- NerdWallet (Aug 2019). 5 Tips for Finding The Best Mortgage Lender
- Hal M. Bundrick, CFP (July 2019). 8 First-Time Home Buyer Loans and Programs
- John Ulzheimer (Sept 2010). Credit Inquiries: Everything You’ve Ever Wanted to Know