Start your home buying process in 2022 

So you’re ready to buy your first property. Congratulations! It’s a big, exciting step. But how to start the process of buying a house? The answer may not be obvious.

Most people start with the exciting part: house hunting.

But you’re putting the cart before the horse. Because before you can make an offer, you need to figure out your financing and budget.

Here’s how to do that.

In this article (Skip to…)

• The first step
• Benefits of preapproval
• What you’ll need
• Choosing a lender
• Get started

The first step to buying a home is making sure you can afford the mortgage. And that means getting preapproved by a mortgage lender.

The lender will check out your personal finances and issue you a letter confirming the amount you’re eligible to borrow. This not only gives you a firm budget for house hunting, but also lets sellers know you’re qualified to make an offer.

Preapproval is different from prequalification, where the lender asks you a few questions and relies on your answers. With preapproval, you’ll actually provide documents and go through most of the checks required for a full mortgage application. So preapproval is genuinely valuable. We’ll get into the process in a minute.

Preapproval is critical in today’s housing market

There’s another important reason to get preapproved, too. And that’s because there are way more buyers than homes in today’s market — which means you need to be ultra-prepared if you want to win a bidding war.

Most sellers are getting multiple offers right now. And they’re far more likely to accept an offer from someone who’s been preapproved for a mortgage than another who says they’re “pretty sure” they’ll be able to get the financing they need to close on the deal.

In many property markets in America, making an offer for a home without preapproval has pretty much the same effect as not making one at all.

1. You’ll know your budget — You don’t want to find your perfect home only to discover you can’t afford it. A preapproval letter will tell you how much you can borrow. Add that to your down payment savings, and you know the maximum price you can pay
2. You’ll know you’re eligible for a home loan — The checks a lender makes for a preapproval are thorough. And you can be reasonably confident that (provided the home you’re buying doesn’t present issues) you’ll be able to close on your purchase
3. You’ll know your mortgage options — You don’t have to choose the type of mortgage or the lender you’ll ultimately use during preapproval. There’s still time to change your mind. But it will help you discover the types of mortgages you can get. Those might be a conventional loan (including a conforming one from Fannie Mae or Freddie Mac) or a government-backed loan through the FHA, VA or USDA
4. You’ll know if you have any issues that could prevent you from buying — As one federal regulator says, “getting preapproved early in the process can be a good way to spot potential issues in time to correct them”

So now you know how to start the process of buying a house. With a mortgage preapproval.

But of course, not all borrowers have perfect finances. And some types of mortgages are designed for people who don’t score highly.

If you’re planning to apply for your preapproval a few months in the future, you can work on improving some of those four points. Often, the biggest difference you can make is paying down credit card balances to below 30% of their credit limits. That should boost your credit score reduce your existing debts.

Financial documentation

Nowadays, some lenders have advanced IT systems that can minimize the documents you have to provide for preapproval. Instead, you give the lender permission to check your bank and other records digitally. That way, it can take hours or even minutes for you to get your preapproval letter by email.

But that tends to work only if you’re employed and your loan application is very straightforward.

If, for example, you’re self-employed, have a low credit score, or have money in your bank that doesn’t obviously come from legitimate sources, you’ll be asked for more documents or to provide explanations. And your preapproval letter could take days or even weeks to arrive.

Whether or not yours is a straightforward case, you can speed things up by having some documents on hand when you apply for a preapproval letter.

Often, you’ll be able to upload these documents to a lender’s website within your application process or email them. So be ready to scan them or take pictures with your smartphone.

Preapproval document list

The documents you’ll likely need to start the home buying process include:

• Valid photo ID
• Last two years’ W-2s and/or 1099s
• Last two years’ tax returns
• Profit & Loss statement if self-employed
• Pay stubs for last 30 days, if applicable
• Statements from bank accounts, retirement accounts, and other asset accounts
• Divorce decree or separation agreement, if applicable
• Contact information for your landlord(s) for the last two years, if applicable

Don’t be surprised if lenders ask for more documents. It’s not always a bad sign. And it’s not in your interests to get approved for a mortgage you can’t afford.

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