Before you start looking for a home you approve of, you need to find a lender that approves of you.

You'll need to fill out an application that tells how much you make, how much you've saved and how much you owe on everything from cars to school loans to credit cards.

The lender will assess that, check your credit report and scores and reply with a letter saying you've been preapproved and for how much.

That's important, because some real estate agents won't even show you a house or condo until you can show them that letter. It tells them that you're a serious shopper with the financial wherewithal to make a deal.

It's also your first chance to see what a bank or mortgage company thinks about you. Getting preapproved can make it quicker and easier to get a loan and close on a house and, in most cases, the process is free.

Don't settle for being prequalified.

That means the lender took your word for everything and didn't pull your credit history or scores. It doesn't really say very much about your ability to get a loan, and sellers consider it to be meaningless.

Here's what you need to do to win preapproval:

Step 1. Get your credit reports.

You should see what's on your credit reports before you ask a lender to look at them. Those reports, and the credit scores calculated from that information, will play a major part in determining whether you qualify for a loan and how much interest you'll have to pay. (The lower your score, the higher the interest rate.)

You are entitled to a free credit report from each of the three major credit-reporting agencies every year. To get yours, go to www.annualcreditreport.com.

There are three credit-reporting agencies, and since you don't know which one your lender will use, you should check all three. If you are married, you will need your and your spouse's credit reports -- six in all.

Even though the reports will be similar, there can be differences, and each agency will calculate its own credit score for you.

The free credit reports do not include your credit score, however, because the reporting agencies are not required to provide that.

You must buy your score, including a copy of your credit report, by contacting the agencies directly:

If you want to buy your credit score, make sure you get your FICO score. It rates your credit worthiness on a scale of 300 to 850 using a formula developed by Fair Isaac Corp. The FICO score is used by virtually every lender.

Fair Isaac provides a credit history from any of the three major credit-reporting agencies, and your FICO score based on that report, when you order the FICO Standard package for $15.95.

Equifax also will sell you your credit history and FICO score through its Score Power package for $15.95.

A free but less precise alternative is to get an estimate of your FICO score by answering some questions about your credit at the Fair Isaac Web site.

Don't go to Experian and TransUnion for your credit score.

They sell consumers a VantageScore, which is calculated using a new system Experian, TransUnion and Equifax created to compete with FICO.

Step 2. Correct the mistakes.

The credit reporting agencies never check any of the information they're given by credit card companies, utilities or other companies. And since they receive millions of pieces of data every day, lots of mistakes are made.

According to a recent survey by the Government Accounting Office, nearly three-quarters of all credit reports contain at least one error.

So check every entry on every report to ensure its accuracy. Then contact the reporting agency to correct any mistakes. Each credit report will tell you how to do this.

You can't ask the reporting agency to remove any legitimate black marks on your credit report, such as missed payments, late payments, repossessions, foreclosures or bankruptcies.

But a written statement describing how an illness, injury, layoff or family crisis caused or contributed to a financial crisis can be attached to your credit report.

Step 3. Assemble your paperwork.

Use our checklist to gather all the documentation you'll need to apply for a mortgage. Most lenders won't ask to see your pay stubs, credit card bills, bank or retirement plan statements during the preapproval process. But you'll need lots of information from those documents to complete the preapproval application.

Step 4. Pick a lender.

Use our comparison chart to determine what kind of fixed- or adjustable-rate loan is right for you. Then use our rate tables to find a lender that offers the best combination of rates and fees for that type of loan.

You don't have to get your loan from the lender that preapproves you. But in many cases, you will. So don't go through the preapproval process with a lender whose rates are unacceptably high or one you're not comfortable with.

Step 5. Visit your lender and apply.

Whether you apply in person or online, through a bank or a mortgage company, the information you'll have to provide is pretty much the same. You'll be asked:

• For your street address, e-mail address, phone and Social Security number. If you've lived at your current address for less than three years, the lender will want to know where you lived before that. If you are buying this home with another person or persons, they'll probably want to know your relationship to the co-borrowers.
• Whether you currently rent, own or live with family.
• How many dependents you have.
• Your annual income.
• Your occupation, employer and how long you've been employed there. If you've been with the company for less than two years, it will ask where you worked previously.
• Your assets -- what you own and what it is worth. This includes your current home and other property, checking and savings accounts, stocks, bonds and retirements accounts.
• Your liabilities -- how much you owe, to whom and how much you pay every month.

• Whether you have filed for bankruptcy in the last 10 years.
• Whether you are behind on any bills.
• Whether you are a first-time buyer.
• Whether you are buying a home as a residence or rental property or, in the case of a duplex or other multi-family unit, both.

Step 6. Answer questions and provide documentation.

The preapproval process can take less than a day or more than a month. It all depends on how complicated your life, credit report, finances and records are.

If you've been working for the same company for 10 years, have two paid-for cars and only three credit cards, you might get an answer in less than an hour. If you've had five addresses and four jobs in three years, or are self-employed, or have a long list of credit cards and creditors as well as a number of black marks, expect it to take longer.

You may be asked to clarify or provide additional information by phone, e-mail or traditional mail. That might include a request for W2 forms, tax returns or other documents.

Step 7. Get approval and start house hunting.

When you're preapproved you'll get a letter from your lender spelling out how much you can borrow. It may also include the interest rate and the type of loan you are preapproved for: 30-year fixed, 5-year ARM and so on.

Take the letter to your real estate agent and start house hunting. But be sure you choose a buyer's agent who will work for you, not the seller.

Since you and the real estate agent now know the loan limit, there is less danger in falling in love with a house that you can't afford.

Remember, however, that you are not required to borrow all of the money the lender is willing to lend you. Knowing how much house you can afford is critical for every buyer.

If a real estate agent insists on showing you houses outside of your price range, find another agent.

Preapproval usually comes with a 30-to-90-day time limit. Most lenders will extend the offer if finding a home you want to buy takes longer than that. But they might run another credit check when they extend the approval.

By Stef Donev

Interest.com Contributing Editor

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