If you want to take the stress out of getting a home mortgage, getting pre-approved for a mortgage is the way to go.

Given the fact that studies show 40% of mortgage shoppers consider the home buying experience stressful, with another 33% say the experience brings them to tears, it’s a wonder more home shoppers don’t get pre-approved for a mortgage first.

Basically, a pre-approved mortgage letter is an offer from a specific mortgage lender to lend you money for a home purchase, under specific conditions and in a specific period of time (for example, 90 days.)

A mortgage pre-approval is not the same as being pre-qualified for a mortgage.

A pre-qualification is much more informal than a pre-approval. It lets a mortgage lender know you meet the minimum qualifications for a mortgage, but doesn’t include an offer for that loan.

Benefits of Mortgage Pre-Approval

What can a pre-approved mortgage do for you? The better question is what can’t it do? Consider these benefits derived from getting pre-approved by a mortgage lender for a home loan:

  • It tells sellers, real-estate agents and, especially, lenders how much you can afford. That gives everyone a clearer picture of a buyer’s commitment and ability to cover the cost of a home purchase.
  • It gets the attention of sellers in a tight bidding situation. In a close bidding negotiation, the winner is often the one with the mortgage pre-approval.
  • Your final mortgage approval and payment delivery go much smoother and faster if you’re pre-approved, as much of the needed paperwork is already completed.

What You’ll Need to Get a Pre-Approved Mortgage

In that regard, getting pre-approved for a mortgage, especially if you’re a first-time buyer who needs all the advantages he or she can get, is a big advantage for buyers.

Get started on that process with the following preparations steps:

1. Get a Free Credit Report

No doubt, the higher your credit score, the better you chances of scoring a pre-approved mortgage. That’s why you’ll need to check your credit score first before approaching a mortgage lender.

Get that process growing with a free credit score report from the three major credit scoring agencies – TransUnion (TRU) - Get Report, Experian (EXPGY) , and Equifax (EFX) - Get Report. You can get a free copy of your credit report from each by going to their websites and taking advantage of their once-a-year free credit report offer. Or, you can get these by  going to AnnualCreditReport.com

2. Check Your Report Thoroughly

Once you get your free credit report, check the document for mistakes or inaccuracies, and make sure to make good on any outstanding debts that are harming your credit score. In real life, that process could take months, given the limited budgets in most American households.

That’s exactly why you need to start your mortgage pre-approval process at least six months before your approach a lender. You may need the time to get your household finances in order so you can qualify for a mortgage pre-approval.

Note - as long as you confine your mortgage lender activity (including completing an application) to 30 days, canvassing multiple mortgage lenders won’t hurt your credit score.)

3. Get the Necessary Paperwork in Order

You’ll need multiple financial documents to gain approval for a mortgage in advance. That list includes the following:

  • Your Social Security number. That includes both numbers if you're buying a home with a spouse or partner.
  • Your bank and investment records (aim for two years of account history.)
  • Your tax records, including your W-2 tax form and your 1099 forms if you have earned any additional income. Again, two years worth of tax records should suffice.
  • Your employment history. While your tax and banking records should provide proof of income earned on the job, having pay stubs or a documented letter from your employer certifying your employment history can get you over the top. If you’re among the growing ranks of the self-employed freelance nation, your tax records will have to act as your documented proof of employment.

4. Reach Out to Mortgage Lenders

It’s a good idea to branch out to multiple mortgage lenders to gain pre-approval.

A little homework will point you to quality traditional mortgage lenders and digital-based ones, as well. Adding a local lender to the mix is a wise move, as well, as a local mortgage company is usually more willing to work with you to get a good mortgage deal.

When you start kicking tires on mortgage lenders, check for interest rates, fees, and customer service reviews.

Rates and fees are available on the lender’s site, and on mortgage lending platforms like Quicken Loans and Lending Tree (TREE) - Get Report, which compare multiple mortgage lenders, along with rates, for you. Customer reviews can be found on similar sites like Zillow.com (ZG) - Get Report and Credit Karma.

Once You Have a Mortgage Lender in Mind...

Okay, you’ve found a mortgage lender you like, and you feel you can work with, go ahead and ask for pre-approval. Your lender will respond by asking you to fill out an application and include the following personal documents.

  • A credit report that includes your personal FICO score and credit history.
  • A legal form of personal identification, like a driver’s license, birth certificate or passport.
  • Two years of personal or household tax forms.
  • Two recent employment pay stubs. Also, expect to be asked for two months of bank records, to show recent income history.
  • All of your household assets, including investment funds, retirements savings, moonlighting income, pensions, and annuities.

What Happens Next?

Once delivered, the mortgage lender will review your paperwork and either accept or reject your request for a mortgage pre-approval.

If you’re given a green light, your lender will issue a pre-approval letter, which you can show to potential sellers and real estate agents, thus demonstrating you’re a serious homebuyer with money in hand.

With your mortgage loan pre-approval in your back pocket, you can go ahead and look for a home to buy. Once you find one you love, you’ll fill out a mortgage loan application.

This is a standard form, known formally as Uniform Residential Loan Application (URLA), or Fannie Mae form 1003.

The loan application lists the following requirements you’ll need to fill out, including:

Your mortgage and loan terms. List what kind of mortgage you’re applying for (i.e. a conventional loan, a VA loan, or an FHA loan, for example.)

Property information and the purpose of the loan. (For example, it could be a general purchase loan or a refinancing loan.)

Employment information. If you’re buying the home with a spouse or partner, you’ll need to include employment information for both of you, if applicable.

Monthly household income. This includes salary income, workplace bonuses and commission, rental income, pension or investment income, and child support and alimony, which are both optional.

Assets and liabilities. All of your personal assets, in total, along with all of your debts, in total.

Transaction information. That includes how the house will be paid for, and any closing costs attached to the seller and to the buyer.

The Takeaway on Mortgage Pre-Approval

With your mortgage already pre-approved, you’ll likely have a clear path to a mortgage approval, and you can begin negotiating the seller on a closing date and formalize all the paperwork you’ll need with the seller, any real estate agent or broker involved, state and local government, and attorney’s fees, if applicable.

After that, you’re ready to move into your new home.