Preapproved

Make a plan. Determine how much you can afford to pay toward a loan every month before the lender makes its recommendation.

The amount you're preapproved for depends on your debt to income ratio. Most lenders like to see that your combined debts equal less than 36% of your gross income, your income before taxes, though you might be approved with a 45% DTI. Only you know how much you're comfortable spending every month, though. Lenders are generally approving borrowers with less debt.

To close on a mortgage, you'll also need the funds to make a down payment. A 20% down payment is usually recommended for a conventional mortgage, but that amount may not be required. You'll likely need to pay closing costs, which usually are about 3% to 5% of the loan amount.

Check your credit reports. Your credit history and credit scores are major factors in whether you're approved and what interest rate a lender charges you. The healthier your credit, the more likely you are to get approved at a good rate.

If there's room for improvement, you can boost your credit score by doing things like paying down debt and making on-time payments every month. You can check your credit reports from each of the three credit bureaus for free every week at AnnualCreditReport.com.

Collect your documents. Lenders will check your income, assets, debts, and credit history to see whether you should be preapproved for a mortgage. Gather the following before applying:

W-2 forms from your employer for the previous two years
Current pay stubs
Federal personal income tax returns for the previous two years
Personal bank statements for the previous two months
Identification, such as a driver's license

Documentation requirements are temporarily higher for independent contractors and self-employed workers, who often have less-stable income. Self-employed borrowers may also need to provide:

An audited profit-and-loss statement that reports business revenue, net income, and expenses and debts
Business bank account statements for the previous two months
A business tax return for the most recent year

Research different lenders. It can take years or decades to pay off a mortgage, so know your lender before you commit. Research the lender and servicer on the Consumer Financial Protection Bureau's complaint database and with the Better Business Bureau. Talk to lenders about their loan closing timeline and ask any questions you have, taking notes on your customer experience.

Apply for preapproval and compare offers. You can apply for preapproval after you've used prequalification to narrow down your options to a few lenders with the best rates and fees. With the solid offer of a preapproval, you may be able to negotiate better terms by pitting lenders against one another.