Pre-Approved for a Home Loan? The Next Steps

If you've been pre-approved for a home loan you will need to complete 3 simple steps to find the home of your dreams and finance it.

Step 1 - Find the Home

Contact a Realtor or broker in the area where you want to buy. Make sure to use a realtor that has experience buying and selling homes in that specific area, and one who understands that market well. They should know the median prices in the area and be able to tell you the neighborhoods to stay away from. You will need to give the Realtor some information to start with, like how many bedrooms and bathrooms you're looking for and the size of the house. You'll also have to let them know the price range that you're looking in, and that information will be listed in the pre-approval you received from the bank. The realtor will print or email you home listings which will contain pictures and property details for the potential homes. You'll pick the ones you like and set an appointment to view them with your realtor.

Step 2 - Make an Offer

Once you find a home you want to purchase you will submit an offer. Your realtor will prepare the paperwork, which will include a purchase and sale agreement and any other legal documents that may be required.  If the seller agrees on price you will strike a deal and move forward to closing. Most agents will insert a financing clause into most residential agreements stating that to purchase the home you will need to get approved financing. Therefore, to purchase the home you'll need to take your pre-approval and turn it into a full loan commitment.

Step 3 - The Loan Commitment

The bank which offered you the pre-approval will require you to submit certain documents to turn that approval into a loan commitment. Those documents are different with each particular lender, but typically include the following:

  • Income verification documents, such as the past two years of tax returns and W-2's, and the past two months pay stubs from your employer.
  • A signed purchase and sale agreement from your realtor.
  • Appraisal confirming the purchase price agreed to by you and the seller.  This report will be ordered by the bank to be performed by an independent third party appraiser. This report costs between $300 - $500 in most states.
  • Title work from a title and escrow company confirming there are no clouds on title and the seller does have the legal authority to sell the property to you.

If all these documents are satisfactory to the lender they will fully approve the loan and issue a loan commitment and schedule a closing date, at which time the lender will supply the money needed to close the transaction. Together with your required down payment, if any, the title or escrow company will transfer funds to the seller and the property will be transferred to your name.