The Complete Pre-Approval Guide for First Time Home Buyers

We deliberately chose to NOT look at any houses until we went through pre-approval.

There are different paths you can take to buying a house.

Here are few ways we could have started:

• We could have gotten a realtor first
• We could have started looking at houses first
• We could have looked at houses and then call the listing agent to show us the house

But we didn't do any of the above.

We started with our finances.

Pre-approval should be the first step.

I didn't even look at houses on Realtor or Zillow.  Stacey on the other hand started looking online for houses. But pre-approval was the most important first step we had to get done before we went out and looked at any houses.

This is how we did it and within 6 months we bought a house - in the middle of a world-wide Covid19 pandemic of 2020.

Make Contact and Start Pre-Approval

I picked up the phone and made the call to Veterans United to start the mortgage process.

Prior to this, we haven't talked to anyone. We just knew we wanted to buy a home.

The branch manager told us what documents we need to collect and submit to get pre-approved.

I asked about pre-qualification and pre-approval and I was told that Veterans United doesn't do pre-qualifications. They ONLY do pre-approvals.

Some lenders do pre-qualifications and you probably seen "get prequalified" offers online. If you don't know what the difference between pre-qualification and pre-approval is:

• Pre-Qualification is a verbal discussion about your finances to determine your debt-to-income ratio. During this process you are just talking and nothing is guaranteed, signed or promised. You can do pre-qualification yourself to determine where you stand using hundreds of free online calculators.
• Pre-Approval is an actual process of filling out an application to get a home loan from a bank or mortgage broker. During this step you actually submit all required documents and the lender looks at your income, your debt and your credit history.

With Veterans United you simply begin the pre-approval by filling out the application. They will run your income/debt numbers, your credit score and give you a limit loan amount.

"Preapproval is a more detailed process than prequalification. Other than pulling your credit reports, lenders basically rely on your word and your best estimates during the prequalification conversation. During the preapproval process, lenders want to verify information. You'll typically need to provide financial documents like pay stubs and bank statements and sign non-binding forms and paperwork. Lenders will be looking at cold, hard numbers and creating the most realistic picture possible of your purchasing power."

So find a lender you want to work with and start pre-approval process.

Take a look at this blog post for 6 articles I recommended that helped me understand the loan process.

But before we filled out the loan application we needed to collect and submit important documentation.

Documents to Collect for Self-Employed

Branch Manager told us we need to collect and submit the following list of documents to begin pre-approval:

• Copy of your last 2 years of 1040 and all business related tax returns (business and personal) must include all schedules and all pages
• If you are not self-employed then you will need W2s.
• Most recent bank statement - all pages for personal and business (checking and savings)
• Copy of DD214, member (4) page
• Copy of Driver's Licenses

More Documents Depending on Your Situation

We are self-employed so the documents we needed to provide are different than if you have a regular employment.

Depending on your specific situation you might need more documents to include. Here is a list from Veterans United article:

• Copy of government-issued photo ID, typically a driver's license
• Copy of DD-214 for veterans; some National Guard and Reserve veterans may need to provide points statements or similar paperwork
• Statement of service letter signed by commanding officer; there isn't a standard form for a statement of service, so talk with your loan officer about what information to include
• Copy of recent pay stubs and last two years' worth of W-2 statements
• Federal tax returns for the last two years if you have income from self-employment, 1099s or rental income
• Copy of most recent bank statements
• VA awards letter documenting VA disability percentage and monthly income amount
• Social Security awards letter documenting monthly income amount
• Copy of most recent retirement account statement
• Copy of divorce decree or court papers specifying alimony or child support obligations
• Child care statement explaining why you don't have monthly child care expenses or detailing the monthly cost

Start collecting all the documents now before filling out an application for pre-approval.

Pre-Approval Application

After spending few weeks collecting all required pre-approval documents we took a drive to a local Veterans United branch in Tampa and did our pre-approval application in person.

When you submit all the required documents for pre-approval you start the application process. The loan officer will go through and fill out the application for you to see how much you qualify to borrow.

During pre-approval the lender will pull your credit score so you get to find out your credit score right then and there.

Wait for the results. For us it took couple of days. They will tell you how much the lender is willing to let you borrow.

Also, during this time Veterans United emailed us to setup our online portal account. The online portal is something we end up using a lot during the house buying process.

Is pre-approval process the same as the application process? Or are these two different?

They are the same. You fill out the application for pre-approval and you submit all the documents so the loan officer can calculate your debt-to-income ratio.

Does the application pre-approval process and submitting documents cost money?

It does NOT cost money. Not with Veterans United. I can't speak for any other place. I don't see why it should cost you money.

Get Pre-Approved First

Find a lender that you want to get the pre-approval letter from. You can go through multiple to see which one you want to work with. You do not have to choose right away, you can shop around.

For us personally, we chose Veterans United. We didn't shop around. We decided to go with them right away.

This decision was based on online reviews and their option for "VA Joint-Loan".

Important: pre-approval letter doesn't guarantee you will get that loan amount as you still have to go through underwriting but it does show you are a serious contender.

Underwriting is the process when you put an offer on the house and the lender begins to look at all of your financials.

But the first thing you need is the pre-approval letter from a lender to get this process started. Pre-approval is what you will use to put an offer on the house.

After Receiving Pre-Approval

Within a couple of days we heard back from Veterans United telling us the amount they are willing to lend us. This gave us a price range of houses to look for.

We then started to do two things. Look for houses that we can afford and we got ourselves a Realtor to represent us.

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