Preapproval is important for two reasons. First, it’s just smart to know for sure how much you qualify to borrow before you start seriously looking at homes. Why get your heart set on something too expensive? Second, sellers will take your offer more seriously if your loan is preapproved. This can be a make-or-break factor in a hot market.
Mortgage & Loan Basics Information
1. Shop for a home
Once you’re preapproved, you can start shopping for a home knowing just how much you can spend on the right place.
This is the fun part, but there’s a lot to it too: finding a real estate agent, deciding what type of home is best for you (new construction? condo?), getting straight on what you want versus what you need, and more. A good agent will help you ask the right questions.
2. Make an offer
Through your real estate agent, you make an offer. If the seller accepts, you sign a purchase agreement. This document details the terms of the sale: the price, what’s included, who’ll pay for the closing costs, the timeline, and more. Your agent will walk you through it.
3. The lender begins final loan processing
With the purchase agreement in place, you now contact your lender so they can start processing the loan.
Your lender is required to give you a loan estimate (LE) within three business days of receiving your complete application for a mortgage. The application you submitted in step 2 isn’t complete until it includes the property address. The LE is a standardized form that makes it easier to understand the terms of your loan.
4. The underwriting process begins
If everything in the loan estimate is acceptable to you, you’ll tell the lender to proceed with the loan. The lender then turns things over to the underwriter, who confirms that all the key factors on your application (credit history, debt load, appraised home value, etc.) meet the lender’s guidelines, and that tax, title, insurance, and closing requirements have been met.
You might be asked for more information, such as your most recent pay stub or proof of homeowners insurance. Sometimes, borrowers have to meet additional conditions at this point, such as paying off another loan or coming up with a larger down payment. You have to meet all the conditions before the loan can close.
Get Pre-Approval – Application & Processing
Apply for the mortgage loan
Once you’ve weighed your loan/lender options, apply for a loan with your first choice. As you can guess, it mainly involves providing a lot of paperwork that demonstrates your ability to pay the mortgage. The basics include pay stubs, your federal tax return, and recent bank statements.
For a comprehensive checklist of the documents your lender might need, see our mortgage application checklist.
After you submit your loan application, the lender does an extensive check on your finances and credit record. If everything checks out, the lender will state the exact amount they’re willing to loan you. The preapproval is good for a set amount of time, usually 60–90 days.
Closing, also known as settlement, is the last step in the mortgage process. You sign all the final documents, and the lender funds the loan and pays the seller, plus anyone you owe fees to. Next thing you know, the keys are in your hand.