Anyone new to home buying asks the same question: “What’s the first step in buying a house?”
While it may seem like there are countless tasks ahead—house hunting, inspections, paperwork—the truth is, there’s one clear first step in nearly every situation.
The first step in buying a house is getting pre-approved for a mortgage.
Getting Pre-Approved | The First Step in Buying a House
Unless you’re paying all cash for your new home, you’ll need to take out a loan from a bank or lender. Getting pre-approved means your lender has reviewed your financial information and determined how much they are willing to lend you.
Why is this step so important?
First, pre-approval demonstrates to sellers that you’re a serious buyer. Without a pre-approval letter, most sellers (and their agents) won’t entertain an offer, especially in a competitive market.
Real estate agents also typically require pre-approval before scheduling house showings, which helps them ensure they are working with qualified buyers.
Second, pre-approval gives you a clear budget range, preventing you from wasting time looking at homes that are beyond your financial reach. It can be disheartening to fall in love with a home only to find out later that you can’t afford it. By getting pre-approved, you’ll know exactly what price range to focus on.
Finally, pre-approval strengthens your position when making an offer. In multiple-offer situations, sellers are more likely to accept offers from pre-approved buyers because they know the financing is less likely to fall through.
How to Get Pre-Approved to Buy a Home
The pre-approval process is fairly straightforward, but it does require gathering financial documentation. Here’s what you’ll need:
1. Proof of Income:
Lenders want to verify that you have a steady and reliable income. You’ll need to provide recent pay stubs, W-2s, or, if you’re self-employed, tax returns from the past two years. Consistent income reassures the lender that you can manage monthly mortgage payments.
2. Proof of Assets:
In addition to income, lenders will want to see your savings and asset statements. This includes bank accounts, retirement accounts, and investment portfolios. Assets show the lender that you have the necessary funds for the down payment and closing costs, as well as financial reserves in case of an emergency.
3. Credit History:
Your lender will pull your credit report and review your credit score. Most conventional loans require a minimum credit score of around 620, though higher scores will help you secure better interest rates. If your credit score is on the lower end, you may want to explore government-backed loans, such as FHA loans, which have more flexible requirements.
4. Employment Verification:
Lenders will verify your employment status by contacting your employer or requesting recent pay stubs. If you’re self-employed, you may need to provide profit-and-loss statements or additional documentation to confirm the stability of your income.
5. Identification and Documentation:
You’ll need to present a valid form of identification, such as a driver’s license or passport, and provide your Social Security number for the credit check.
Once you submit these documents, your lender will review everything and issue a pre-approval letter that outlines how much they are willing to lend.
How Long Does Pre-Approval Take?
In most cases, pre-approval takes one to three business days, assuming you have your documents ready. During busy times or if your financial situation is more complex, it could take longer.
Picking the Right Mortgage Loan
After you’re pre-approved, it’s time to understand your loan options. There are several types of mortgage loans, each with its own benefits and eligibility requirements.
Conventional Loans:
Conventional loans are ideal for buyers with good credit and a stable financial history. These loans typically require a down payment of at least 5%, though putting down 20% or more allows you to avoid private mortgage insurance (PMI). Conventional loans offer competitive interest rates and flexible terms, making them a popular choice for well-qualified buyers.
FHA Loans:
FHA loans are backed by the Federal Housing Administration and are designed to help first-time homebuyers or those with less-than-perfect credit. They require a minimum down payment of 3.5% and are more lenient when it comes to credit scores. However, FHA loans require both an upfront mortgage insurance premium (MIP) and monthly mortgage insurance payments.
USDA Loans:
For buyers looking in rural or suburban areas, USDA loans offer a unique benefit: zero down payment. These loans are government-backed and available to moderate-income buyers who meet location and income eligibility requirements. USDA loans can be a great option for buyers seeking affordable homeownership outside of major metropolitan areas.
VA Loans:
Exclusively available to veterans, active-duty service members, and eligible spouses, VA loans offer exceptional benefits. They require no down payment and no private mortgage insurance, making them one of the most cost-effective options for eligible buyers. VA loans also tend to have competitive interest rates.
Choosing the right loan depends on your financial situation, future plans, and homeownership goals. Your lender or real estate agent can help you explore the options and determine which loan best fits your needs.
Final Thoughts: Why Pre-Approval Matters
If you’re serious about buying a home, pre-approval is the essential first step. It gives you a clear financial picture, strengthens your offer, and helps you shop for homes with confidence.
By getting pre-approved, you’ll be in the best position to find the right home at the right price, without unnecessary delays or complications.
If you’re considering buying a home, I can connect you with trusted lenders and guide you through the entire process—from pre-approval to closing. Contact me today to get started!
