What is mortgage pre–approval?
Mortgage pre–approval is when a lender determines you’re qualified for a home loan.
Your pre–approval letter shows the maximum loan amount you’re approved for (your home buying budget), as well as the interest and rate and loan term you can expect.
To get pre–approved, lenders will assess your full financial picture, including your credit and income.
This is different from a mortgage pre–qualification, which requires no documents and won’t give you the backing you need to make an offer on a house.
It’s crucial to get pre–approved before you try to make an offer on a home, or even start house hunting. Here’s how to do that.Start your mortgage pre-approval today (Dec 6th, 2021)
In this article (Skip to...)
- How to get pre–approved for a mortgage
- Pre–approval versus pre–qualification
- Can you get denied after pre–approval?
- Mortgage pre–approval FAQ
- Common pre–approval mistakes to avoid
How to get pre-approved for a mortgage
The pre–approval process varies from lender to lender. But it generally involves a loan application, a credit check, and various forms of documentation.
Many lenders let you complete the whole pre–approval process online. But if you want, you could also do it over the phone or in person.
Step 1: Complete a home loan application
To get pre–approved, you need to fill out a mortgage loan application. Your lender will usually let you complete your loan application online, over the phone, or in person. Online applications typically take 10–20 minutes to complete.
The loan application, also known as Form 1003, asks for your personal information, financial information and loan information.
After your application is completed, the lender will pull a three–bureau credit report known as a tri–merge. This report shows your credit scores and credit history.
Note, you can apply and get pre–approved with any lender you wish. You can even get pre–approved by more than one lender to find the best offer.
Pre-approvals are non-binding, and you’re free to switch lenders before taking out the loan.
Step 2: Document your income and assets
Your lender will require documentation to support the info in your loan application. This is what makes getting pre–approved different from getting prequalified.
Typically, your lender will require the following documents for mortgage pre–approval:
- Identifying documents such as a valid driver’s license or Social Security card
- Last two years’ W–2s and/or 1099s
- Last two years’ tax returns
- Profit & Loss statement if self–employed
- Paycheck stubs for last 30 days, if applicable
- Statements from bank accounts, retirement accounts, and other asset accounts
- Divorce decree or separation agreement, if applicable
- Contact information for your landlord(s) for last two years, if applicable (if you already own a home, housing payment history will show up on your credit report)
To speed up the pre–approval process, it helps to have these documents in hand before you get started.
Some lenders can pull documents directly from your employer and bank, but not all. Some can also verify your income with the IRS, with your consent.
Step 3 – Your mortgage lender completes the pre–approval
Once you’ve filled out your pre–approval application, turned in your documents, and paid your application fee (if applicable), your work is done. The last step, underwriting, is up to your lender.
Most lenders use a universal automated underwriting system (AUS) to pre–approve customers for home loans. AUS is a technology–driven underwriting process that provides a computer–generated loan decision.
In other words: You don’t have to wait for a human underwriter to read through all those documents and approve or deny you.
By using automated underwriting, lenders can render near–instant decisions that could take up to 60 days to complete via manual processing.Start your mortgage pre-approval today (Dec 6th, 2021)
Pre-approval versus pre-qualification
It’s easy to confuse mortgage pre–approval with mortgage pre–qualification (especially because lenders often make up their own names for these steps).
But you shouldn’t mix up these two processes. A pre–approval letter gives you verified home buying power, whereas a pre–qualification letter is just an estimate of what you can afford.
Getting pre–qualified involves an informal interview with a mortgage lender.
The lender will ask about your credit, income, assets, and debts. Then it gives you a general idea of the price range you could afford and how much cash you’d need to purchase a home.
Pre–qualification can help you figure out what homes you can afford. But since none of your financial information has been verified yet (only stated), a pre–qualification letter won’t be taken seriously by a home seller.
To actually make an offer, you need a pre–approval letter.
Pre–approval requires all the same information as pre–qualification, but the lender goes one step further by actually verifying the information you provide. That means it will look into your credit report, employment history, assets, and income.
To get a pre–approval letter, you’ll complete a full loan application. That includes submitting documents like W2s and bank statements, and authorizing a hard inquiry on your credit, to support the information you provided verbally.
With a pre–approval letter in hand, you’re free to make an offer on a house within your price range. The seller now has proof that you’re a serious buyer who should be good for the amount stated.
Can you get denied after being pre–approved for a mortgage?
Yes, you can get denied for a mortgage loan even after being pre–approved for it. There are a number of reasons this could happen.
For example, after your pre–approval, new negative information could appear in your credit history, dropping your score below the lender’s qualification guidelines.
Or, if you lost your job prior to closing on the loan, you’d likely be denied. That’s because the lender can no longer verify you’ll be able to make your payments.
And common mistakes could affect your pre–approval, too – like running up too much credit card debt before the loan closes.
Basically, anything that significantly impacts your financial picture between your pre–approval and loan closing could change your mortgage eligibility.
Also keep in mind that a pre–approval typically happens prior to finding a home. As such, your new home must also be approved by the lender.
For example, the loan amount can’t exceed the home’s appraised value. And if you’re getting an FHA or VA mortgage, the new home must meet government safety standards. The presence of lead paint in an older home, for example, could derail the home–buying journey.Verify your home buying eligibility (Dec 6th, 2021)
Mortgage pre-approval FAQ
Most mortgage pre–approvals require a “hard” credit pull which can affect your credit score. But the impact is usually very small. According to myFICO, one hard inquiry will take less than five points off your FICO score. (For perspective, the full scoring range is 300–850.) And if you get multiple pre–approvals within 2–4 weeks of one another, they all count as a single hard inquiry – so your score will only be dinged once.
Mortgage pre–approval letters are typically valid for anywhere from 30 to 90 days. However, a pre–approval can be updated and extended if the lender re–checks your information. The pre–approval letter serves as evidence that a lender has reviewed your credit and verified your income and assets.
Getting pre–approved is similar to getting pre–qualified, except a pre–approval requires all the information you provide to be documented.
For a pre–approval, you typically have to complete a full mortgage application and maybe pay an application fee. You will then supply the lender with financial documentation like pay stubs, tax returns, and W2s, and your credit history and score will be pulled. Some sellers might also request to see your bank and asset statements.
Pre–approval is free with many lenders. However, some charge an application fee, with average fees ranging from $300–$400. These fees may be credited back toward your closing costs if you move forward with that lender.
However, since pre–approval does not tie you to a lender, we’d recommend starting out with one that offers a free pre–approval. You can always choose a new lender later on if you find a lower mortgage rate.
The timeframe for getting pre–approved varies by lender. Most lenders take one to three days. Banks and credit unions may take up to 30 days. For the fastest pre–approval, look for a lender that specializes in digital loan applications.
Most lenders recommend getting pre–approved three to six months before you plan to buy a home. If you foresee roadblocks for your loan (like having to improve your credit score or pay off debts), you may want to get your first pre–approval up to a year prior to your home purchase. That should give you enough time to clean up your credit report and increase your down payment.
Pre–approval letters vary from lender to lender. They typically include the purchase price, loan program, interest rate, loan amount, down payment amount, expiration date, and the property address. The letter is typically submitted with your offer to buy a new home.
If you need to switch loan programs after getting pre–approved – from a conventional to an FHA loan, for example – you’ll likely need to start the pre–approval process all over again with a new loan application.
Doing this would likely delay your closing and change the interest rate and terms of your loan. Different loan types also have different down payment requirements. To help avoid these kinds of delays, identify your ideal mortgage type near the beginning of your home buying process.
A knowledgeable loan officer will advise you on your best option upfront. Find a new loan professional if you’ve found they steered you in the wrong direction – for instance, you’re a veteran or are buying in a rural area and he or she suggested an FHA loan instead of a zero–down VA or USDA loan.
More trouble is on the way if you continue to use an inexperienced or dishonest loan officer.
A seller’s real estate agent may not want to show a home unless you have a pre–approval letter. Your own agent would likely show the property; however, most real estate agents prefer working with homebuyers who have been pre–approved. The pre–approval letter proves you’re a serious buyer.
Yes. Mortgage underwriting depends, in part, on your other debts as measured by your debt–to–income ratio. Credit cards, auto loans, student loans, and other personal loans will factor into your DTI.
If your debt–to–income ratio is too high, lenders will be wary about your ability to make mortgage payments and could deny your application. After getting pre–approved, avoid applying for other loans or increasing your credit card balances before the home closes.
Common pre-approval mistakes
Any changes to your mortgage application after getting pre–approved could affect your eligibility, interest rate, or home buying budget.
After getting pre–approved for a mortgage, try to maintain the status quo until you close on the home. For example:
- Keep the same job
- Delay major purchases that could impact your credit or debt–to–income ratio
- Protect your savings account
- Gather documentation for any large deposits into your bank accounts
If you do have any major changes in any of these areas, be sure to contact your lender as soon as possible.
Otherwise, by holding steady, you should be able to keep your mortgage pre–approval intact and your home offer secure.
Start the pre–approval process
If you’re ready to start house hunting – or even considering it in the near future – it’s time to get pre–approved for a mortgage.
Pre–approval will help you lock in your home buying budget. It’ll also turn up relevant issues, like a low credit score, that you might want to know about and fix before buying a house.
Ready to get started?Show me today's rates (Dec 6th, 2021)