If you do not have a mortgage lender and don't know of anyone in particular to work with, start by asking your real estate agent if he/she has any recommendations. Typically, agents work with a few on a very regular basis and can get you in touch with someone quickly.
For starters, you should understand the difference between "pre-approval" and "pre-qualification". Neither will necessarily guarantee you a loan, but these tips will help you get closer to your dream of buying a home.
Pre-qualification is the first step you can take with a lender, but it is not mandatory. This will simply give you a ballpark idea of how much a bank will loan you, so you can start to look at homes within that price range. Most banks and credit unions are able to conduct this over the phone, and your credit history will typically not be checked at this point. A loan officer will ask about your income, projected down payment, assets, debts, and then calculates what kind of loan you will likely qualify for.
Pre-approval is much more involved and will require you to make an appointment with the lender. The lender will gather all the information required to offer you the loan, and your credit report will be checked at this point. Don't go out and buy a new car or sign up for new credit cards right before this process. Here is a list of documents you will need to provide:
- Your most recent W-2 (or entire tax return if you are self-employed)
- Proof of IRAs or any retirement accounts and their current balances
- Copies of your most recent bank statements (include your daily checking account, money market accounts, savings, and any other accounts)
- Copy of any mutual funds or stocks you may have outside of your retirement accounts.
- Copy of your driver's license
- The most recent one to two month's worth of paystub(s) from your employer (this can vary by lender).
- An application fee (this will also vary by lender)
The end result of the pre-approval process is the good faith estimate. If the lender reviews all of your documentation and deems it acceptable, you will then receive what's called a good faith estimate (GFE), which is a brief one page document laying out the likely terms of the loan, loan type, interest rate, and closing costs. This process requires several steps and is rather time-consuming, but you will need to complete it will a few lenders in order to comparison shop. It does pay to compare.
Pre-approval does not mean the bank guarantees you the loan. It really means that you are approved to get the loan and unless something goes wrong you should not worry. The lender commits to the loan after they have the house in question appraised to ensure that you're not paying a higher price than what the home's market value really is. This protect them in case you default on the loan. Lenders will also check to make sure the home has a clear title and that you have insured it for replacement value.
This doesn't mean that you are done submitting documentation! Expect your lender to request recent copies of your bank statements and pay stubs again shortly before close of escrow. At times you will feel like you've submitted the same thing five times, but don't worry....soon enough you will be sitting in your home enjoying a nice refreshing beverage!