Do One Thing: Get pre-approved for a mortgage (time: a few hours)

Kate Ashford  |  04:51 PM, Monday, June 13, 2011

If you’re house hunting, getting pre-approved for a mortgage shows brokers and sellers that you’re serious, that you can afford a home, and it’ll help you gauge how much house you can actually afford. (Although you don’t have to spend as much as the bank will give you. Keep the last few years in mind.) It should also speed up the buying process once you find a home, since you’ll already have done part of the legwork. (You’ll have to paint the walls yourself—we can’t do everything for you.) Here’s how to do it.

This is for you: If you want to buy a house. (Or an apartment, or a condo, or a co-op. You get the idea.

Hands-on time: A few hours to complete the application process with two to three different lenders.

Total time: Up to two weeks for a full mortgage commitment from a lender.

Cost: $0

What you’ll need: (This may vary from lender to lender.)

• Proof of income for the past two years (W2s or 1099s, for instance)
• Your last two tax returns
• Your employer’s name and address (and any previous employers if you’ve been in your current position for less than two years)
• Previous address if you’ve moved in the last two years
• At least two recent pay stubs or other proof of income
• Records of investment income (dividends, interest, etc.)
• At least your two most recent bank account statements
• Proof of rent payments for the past 12 months, if you’re a renter
• Estimated purchase price and estimated down payment
• Information about your assets (values of bank account, investment accounts, and other accounts) and current expenses (including housing, credit card and loan payments, child support, etc.)

What to do:
1. Locate two or three mortgage lenders in your area. (One place to start: Find local mortgage rates on Bankrate.com and consider calling a few of the lenders on that list. But in general, stick with lenders you’ve heard of—brokers are typically more comfortable when you have a pre-approved letter from a big name.) A realtor might also be able to recommend a lender.

2. Call each lender and ask how you can get pre-approved for a mortgage. The process usually includes an application that requires a variety of financial information. It will also involve a credit check.

3. If you don’t want to go through the entire process with three different lenders, consider going through it once (with one lender) and then calling one or two other lenders. Tell them you were already pre-approved at a particular rate for XYZ amount of money, and ask them what they could offer you.

4. Once you’ve submitted the application and all required information, the lender will review it and tell you if you qualify for a loan preapproval. If that happens, you’ll be provided with a letter that outlines the mortgage amount, down payment, and interest rate you’ve been preapproved for. That letter is what you take with you when you’re shopping for a home.

5. Getting preapproved for a loan with a lender is not a commitment—you don’t have to get your mortgage from that lender.

6. There’s usually a time frame attached to the preapproval (90 days, for instance), so make sure you understand when that preapproved offer expires. You may be able to get the letter re-validated toward the end of that time frame if you’re still house hunting.

7. Note: Preapproval and prequalification are not the same thing. Prequalification provides an estimate of how much you can afford, but it’s not a guaranteed offer, and it typically doesn’t require as much financial disclosure on your part. Preapproval is more thorough and binding.

8. Find a house. Make an offer. Move in. (Easy, right?)

To learn more:
7 Tips for a Preapproved Mortgage (MSN Money)
Get Pre-Approved for a Mortgage (LearnVest)

Did you do it? Tell us what worked or share other tips in the comments below.