Mortgage Pre-Approval: How to Get Pre-Approved for a Home Loan
A mortgage pre-approval letter can help you find a house within your budget, compare lenders and rates, and make it easier to work with real estate agents. This guide will explain how to get pre-approved for a home loan.
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Shopping for a home is exciting. But before you decide between two and three bedrooms, or fall in love with the perfect backyard, you’ll need to decide how to finance your home and how much house you can afford.
A mortgage pre-approval is a great place to start and can help you set your budget, compare options, and simplify the mortgage application process. With a pre-approval in hand, you’ll also be able to signal to sellers that you’re a serious buyer.
This guide will explain the pros and cons of mortgage pre-approval and how to get pre-approved for a home loan.
In this guide:
- What is mortgage pre-approval?
- Pros & cons of mortgage pre-approval
- How to get pre-approved for a mortgage
- How long does getting pre-approved for a mortgage take?
- Where to get pre-approved
- Frequently asked questions
What is mortgage pre-approval?
Mortgage pre-approval is an indication of the loan amount and rate a lender could offer you for a mortgage if you submit a full application. Primarily, it acts as a guide to help you limit your search to homes you can afford.
When you apply for a mortgage pre-approval, the lender will run a credit check and review your income, debts, and assets. This will determine how much of a mortgage you can afford and at what interest rate.
Pre-approval isn’t required, but it has become standard practice in the home buying process. It can:
- Help you shop around and find the best lender, rates, and terms.
- Open the door to working with agents who require potential buyers to have a pre-approval. It shows you’re ready to make an offer when the right opportunity arises.
- A pre-approval also can help you get the home you want in a competitive market, showing sellers you’re ready and able to buy.
What’s the difference between mortgage pre-approval and prequalification?
Though similar, mortgage pre-approval and mortgage prequalification are not the same thing.
- A pre-approval is a formalized document that shows a lender has reviewed your finances with an official credit check and determined the mortgage amount for which you’d qualify.
- A prequalification is a bit more general and is often the product of a quick financial review, not a thorough credit check or financial analysis. There’s no hard credit inquiry, and you won’t have to complete a full mortgage application.
If you’re serious about buying a house in the next 60 to 90 days, a pre-approval is your best choice. If you’re casually comparing mortgage options, a prequalification is a good starting place. But the prequalification won’t be as reliable as your pre-approval or as useful with agents and sellers.
Pros & cons of mortgage pre-approval
- Helps set your price range and limit your house hunting to places you can afford.
- Allows you to compare lenders, rates, and terms.
- Makes it easier to work with a real estate agent.
- Enables you to put an offer on a home when you’re ready.
- Can result in a hard credit check, which can show up on your credit report and impact your credit score.
- Isn’t always the same as your final loan offer.
- Typically expires within 60 to 90 days.
How to get pre-approved for a mortgage
You can apply for a mortgage pre-approval with any lender that offers a mortgage product, including banks, credit unions, and online mortgage lenders. Some online lenders will require you to complete the pre-approval or full loan application process at a local branch or over the phone.
Regardless of how you apply or what type of lender you work with, you’ll typically be expected to complete a full application and provide certain documentation (listed below).
Once submitted, the application will go through an underwriter (i.e. software or a person who manually determines your creditworthiness), and the lender will determine your eligibility, terms, and rates.
Finally, you’ll receive an official mortgage pre-approval letter that you can use to guide your search and show to agents. Typically, this includes:
- The loan type.
- The loan amount and purchase price you’re eligible for.
- Interest rates.
- Loan terms.
- When the pre-approval expires.
The pre-approval letter will also include information about conditional factors that can impact your approval, such as job loss, an increase in outstanding debt, or a low appraisal on the home.
What do lenders look at when you apply for pre-approval?
Lenders consider several factors when determining your eligibility for a mortgage, including your debt, income, and borrowing history.
- Your credit score: Your credit score is a reflection of your borrowing and repayment habits. Most scoring models range from 300 (poor) to 850 (excellent). Generally, you’ll need at least a good credit score, around 620, though some loan programs, like FHA loans, accommodate borrowers with lower scores.
- Your debt-to-income ratio (DTI): Your DTI is your total monthly payment toward debt divided by your gross monthly income. The lower your DTI the better. For home loan pre-approval, it should be no higher than 43%.
- Your employment history: A mortgage is a long-term financial commitment, so lenders want to ensure you can maintain a stable income.
- Your loan-to-value ratio (LTV): Your LTV is the size of your loan compared with the value of the home you plan to purchase. For pre-approval purposes, it will reflect your potential mortgage debt based on the down payment you can make.
Information you’ll need when getting pre-approved for a home loan
Though lender documentation requirements vary, you’ll likely need the following to get a pre-approval letter:
- Identification, such as a driver’s license and Social Security number.
- Proof of employment and employment history for the last two years.
- Proof of income (e.g., current pay stub).
- Tax returns and W-2s.
- Bank account information and statements.
4 ways to boost your chances for mortgage pre-approval
Though lenders consider several factors—income, employment history, DTI, etc.—your credit score will play a significant role in mortgage pre-approval. So check your credit score before you apply.
If your score doesn’t meet lending requirements, consider raising it before you apply for a mortgage pre-approval. Even if your score does meet lender requirements, boosting it before you apply can mean you’ll be eligible to borrow a higher amount and get a better mortgage rate.
Here are four things you can do to improve your credit score before you apply for home loan pre-approval:
- Make sure your utility accounts are in good standing: Unpaid utility bills can show up on your credit report. Paying them on time and in full can clean up your credit report.
- Pay off debts: This may include student loans, but is especially important for revolving debt like credit cards or store accounts. Doing so can lower your DTI and credit utilization, both of which can increase your credit score.
- Spend less of your income (or earn more): Lowering your DTI by reducing debt and spending, or increasing income, can improve your pre-approval odds. If you can’t cut your spending, consider boosting your income by adding a side-gig or working more hours.
- Increase your down payment: Though this isn’t part of your credit history, a higher down payment reduces the lender’s risk, which will help your application if you have less-than-perfect credit. A larger down payment can also give you more home equity, eliminate private mortgage insurance (PMI), and lower your monthly mortgage payments.
How long does getting pre-approved for a mortgage take?
Assuming you submit your application and required documentation at the same time, you can typically expect a decision within one to three business days. Some lenders even offer pre-approval in minutes.
For fast pre-approval, have all your documentation ready to go when you apply, and ensure your application is accurate.
Where to get pre-approved
You can apply for pre-approval from any lender that offers mortgage products. Getting pre-approved by different lenders can help you compare rates and terms before you commit to a mortgage.
Our list of best mortgage lenders is a great place to start your search. We’ve analyzed loan amounts, credit requirements, interest rates, customer service, and more to ensure you’ll be in good hands when you apply for pre-approval.
Frequently asked questions
Yes, you can be pre-approved for a mortgage when you are self-employed, but you may have to provide additional information along the way. This includes proof of consistent income, including two years of tax returns and bank statements as well as client names, and investments or assets.
Generally, yes. But shopping around is important and not necessarily something that credit bureaus want to punish you for.
If you apply with several lenders within a short period—for example, two weeks or less—your hard inquiries will likely be lumped into one, effectively hitting your credit report a single time.
Hard inquiries are typical but not universal, so you may be able to find lenders that work with a soft inquiry. The best bet is to inquire with each lender and read the fine print before you submit your application.
You can read more about hard vs soft credit inquiries here.
Yes; in fact, there are major benefits to getting more than one pre-approval. Instead of relying on a single lender, you can compare rates and terms. Look at least three lenders to determine the rate range you fall into and the terms you’re likely eligible for.
Not necessarily. Factors such as a change in employment or an increase in debt could cause lenders to withdraw their approval. But most people who are pre-approved will be able to get a mortgage loan.
Typically, mortgage pre-approvals are good for 60 to 90 days. Your pre-approval letter will include specific information about how much time you have.
Regardless, you shouldn’t wait too long, because, after about a month, inquiries from your pre-approval process will register on your credit report and can temporarily lower your credit score. That can hurt your efforts in the long run.