First Time Home Buyer Pre Approval: 3 Tips To Get Approved Quickly

By James Young on January 14, 2014
First Time Home Buyer Pre Approval: 3 Tips To Get Approved Quickly

One of the most common mistakes first-time home buyers can make when shopping for a house is to enter into the process without an understanding of how much home they can afford. Seeking pre-approval not only keeps you from wasting time looking at homes outside your price range, but can keep you from the disappointment of finding a home you truly want, only to find you can’t afford it.

Instead, you can limit your search to homes and neighborhoods within your means. In addition, once you are ready to put in an offer on a home, sellers will take you more seriously and often give your offer priority over similar terms without pre approval.

Having loan pre-approval allows you to act more quickly and gives you an edge in negotiations.

Plus, once you have been preapproved for a loan, you then have a base from which to do a bit of window shopping for loan options open to you.

Here are three tips to make first time home buyer pre approval go more smoothly:

1. Gather all necessary paperwork

Unlike pre-qualifying, which simply relies on your best estimates about your financial situation, the more involved process of preapproval requires you to provide the prospective lender with documents that will be used to verify your financial and employment situation. These documents are required of both you and your co-borrower, if applicable. Ensuring you have these documents available at the start can help to speed up the preapproval process.

It varies, but typically the loan officer will ask for the following:

  • W2s from the past two years of employment 
  • Pay stubs from at least the previous three months
  • State and federal tax returns for the past two years
  • Banking statements for your checking and savings accounts over the past three months
  • Any statements or paperworks over the past two months related to other assets, such as stocks, bonds or retirement accounts
  • The name and phone number of your current landlord, if applicable
  • Any divorce decrees, if applicable

If you are self-employed, the process can be a bit more challenging. In place of your wage statements, you will be asked to provide:

  • Business tax forms for the past two years
  • Year-to-date profit and loss statements
  • Year-to-date balance sheet 

2. Review your credit report and correct any errors

During the preapproval process, the loan officer will pull a copy of your credit report to look for any red flags, such as late payments, charge offs and reckless use of credit.  A surprising number of people have errors on their credit report, however, so it pays to get a copy of your credit report (and that of your co-borrower, if applicable) and ensure all the information is accurate before speaking with a lender. Each of the three big credit bureaus—TransUnion, Experian and Equifax—have information available on their websites explaining how to correct a mistake or dispute information in a report generated by them. You can request one free copy of your credit report each year without incurring a cost. The official site for doing so is annualcreditreport.com.

3. Improve your debt-to-income ratio

While you may find it difficult to do much about your income level, you may be able to do something to decrease your debt. Your lender will be analyzing your overall debt, including minimum credit card payments, student loan payments, and car payments, to come up with your overall debt-to-income ratio. Decrease your overall debt by paying down credit cards and loans prior to the preapproval process.

Preapproval does not guarantee you will receive a loan. Once your offer is accepted on a property, the home will need to be appraised and your lender will need to formally approve your loan if all qualifications are met. But first time home buyer pre approval does bring you much closer to final loan approval and offers significant advantages in the home-buying process. 

If you enjoyed this article, get email updates (it's free)

* indicates required

About James Young

My name is James Young- I love red wine, sailing, and playing guitar. I believe that everyday is truly a gift. I'm blessed to live five minutes from the sand in the beautiful city of Long Beach, CA. When I'm not assisting homeowners, you'll find me belting melodies with friends around a campfire, wandering the halls of an art exhibit, or watching ESPN re-runs until the sun comes up. So what am I doing here, you might ask? In a couple of sentences- I'm passionate about empowering first-time and experienced home buyers to make their dreams a reality. Whether it's saving thousands on your home loan, buying your first home, or acquiring your first investment property, I'm always here to help. Don't hesitate to ask questions, and please remember to "share the love"! :) #loveloans #loverealestate #lovelife!