5 Steps For Getting Pre Approved For A Mortgage

For the majority of homeowners (80%, per the National Association of Realtors), buying a home is made possible, thanks in part to a mortgage. So, knowing the steps to getting pre-approved for a mortgage is highly beneficial for those considering buying a home.

Unlike a credit card or a car loan, a mortgage loan is more involved than other consumer lending scenarios. However, with just a little organization and preparation, you can prequalify for a mortgage and be home shopping in no time!

Throughout the following, we’ll cover everything you’ll need to obtain a house loan pre-approval so you’ll be ready for any lender.

Getting Pre-Approved for a Mortgage: 5 Steps to Homeownership

The common denominator in all home sales is money. Anyone relying on a loan to pay for a home must complete the same few steps to get pre-approved for a mortgage.

Think of getting pre-approved for a mortgage as a kind of stamp of approval: it shows sellers you’re a serious contender with the financial backing to buy their home. But before you get your hands on a pre-approval letter, there’s a process to getting pre-approved for a loan. Let’s break it down into manageable steps.

1. Gather Your Financial Information

Once you’re ready to home hunt seriously, a house loan pre-approval will be key. But your lender (or lenders) will first need to assess your financial health. Get these documents ready beforehand:

Proof of income (pay stubs, W-2s, or tax returns for self-employed). Depending on the time of year you plan to buy, you may need to provide more receipts or pay stubs to demonstrate earnings since the last time you filed taxes. Note that at least the previous two calendar years of tax returns must be filed and accepted by the IRS.
Employment history (recent pay stubs or employer verification letter). Most businesses should be able to print and sign an employer verification letter easily. For self-employed individuals or freelancers, most written work contracts should suffice.
Proof of assets (bank statements showing savings or investments). You can often use a screenshot when attempting to prequalify for a mortgage, but an official pre-approval will require printed statements.
Credit history (credit report and score). Your lender will pull your scores and use their specific metrics to derive a score, but you should still check your reports from Experian, Transunion, and Equifax beforehand. If your credit isn’t in great shape, try using free apps like Credit Karma to dial into your credit health as you work toward improving your scores.
Documentation of debts. A lender will determine your total buying power based on what you earn, in addition to the debts you owe. Make sure to collect statements from credit cards, car loans, child support or alimony, and documents from other financial obligations along with your income documents.
Identification (valid government ID). Understandably, lenders need to be able to verify you are who you say you are!

The best way to approach this task in the modern world is to simply download all the items you’ll need and save them in a folder with sensible names. Most lenders can easily accept many of the above items as email attachments or uploads to a customer portal, making this portion of getting pre-approved for a mortgage easy on everyone.

2. Assess Your Budget & Identify the Best Time to Get Pre-Approved for a Mortgage

If you’re not ready to buy a home immediately, it might be best to wait until you’ve both completed a home loan prequalification to ballpark your buying power and found a home (or homes!) you really love.

Knowing your budget upfront is empowering. A prequalification (or at least a well-constructed budget) helps you:

Target your search. Obtaining a home loan prequalification will allow you to focus on homes that fit your affordability range and greenlight moving to the next step of getting a mortgage.
Expedite the pre-approval process. Having a budget will narrow down your search. Prequalifications completed through certain lenders will save time when you’re ready for an official house loan pre-approval, as most data should transfer.

Getting pre-approved for a mortgage early gives you a clear picture of how much house you can afford. Try our free mortgage calculator to crunch numbers along with current mortgage rates to get an understanding of what to expect before you reach out to a lender to get pre-approved for a mortgage

3. Credit Checks and Pre-approval

Once you’ve decided to proceed with getting pre-approved for a mortgage, the first step is a credit check, which will temporarily lower your score. While this counts as a hard inquiry on your report, know that it is typical for everyone seeking a mortgage.

A credit check from a mortgage lender will have minimal impact as the dip is typically small and your score recovers quickly. Shopping around for rates within a specific timeframe (usually 30 days, but some are valid for up to 90 days) counts as a single inquiry.

Use this time wisely to obtain other pre-approvals and use the best offer once you’ve found the home you want.

4. Use the House Loan Pre-Approval Letter As a Bargaining Chip

Once you get pre-approved for a mortgage, you’ll receive a preapproval letter that lets real estate agents know exactly what you can afford and the type of loan(s) you’re eligible for. Remember that certain mortgage types, like FHA or USDA loans, have specific stipulations, meaning not all homes will qualify.

This document holds weight because it shows real estate agents and sellers you’re a qualified buyer with financing secured. So long as you’re pre-approved, you can move to the next steps in the home-buying journey.

5. Put an Offer on a Home

A house loan pre-approval typically lasts 30 to 90 days, so use this time wisely to find a home you like that aligns with your pre-approved conditions. Once you’ve found a home, let your realtor know you’re ready to submit an offer.

Usually, most real estate agents will try to submit offers within 24 hours, especially during high competition. Motivated sellers will typically respond quickly, at which point they can:

Accept your offer. If the seller likes your offer, you’ll be set to move to the next phase of the home-buying process.
Produce a counteroffer. Counteroffers are the norm for most. You can either accept their counteroffer or attempt to offer another amount.
Reject your offer. During peak buying times, some sellers will receive a deluge of offers and will flat-out reject your offer. Either offer a higher amount or find a different home.

Should your dream home appear near the deadline, contact your lender to try getting preapproved for a mortgage again with updated financial information. Most lenders can easily extend the preapproval unless there is a significant change in your financial situation.

If all goes well and your offer is accepted, closing on the home can usually be completed in only about a month!