For most buyers, getting pre-approved for a mortgage is crucial because it gives you a clear idea of how much you can borrow. It also shows the seller that you’re serious about purchasing a home.
Although U.S. home sales have started to slow in 2024, it remains a seller’s market with prices high and inventory low, so getting pre-approved when making an offer on a home can help you set yourself apart from competing buyers.
What is mortgage pre-approval?
A mortgage pre-approval is a statement, usually a document or letter, that states how much money a lender is willing to lend you to buy a home. This document or letter is given to you after you apply and is based on your financial profile, including your income, assets in your savings and investment accounts, and liabilities.
Lenders also conduct rigorous credit checks as part of the pre-approval process. This information allows the lender to make an informed estimate of the price of a home a borrower can afford.
Pre-approval indicates that you qualify for financing, and the lender is ready to move forward with the loan as long as the home meets certain criteria and your financial situation doesn’t change significantly between the time you actually find a home you want to buy and apply for a mortgage.
Mortgage Pre-Approval and Pre-Qualification
Although pre-approval and pre-qualification seem like similar terms, they are different in important ways.
- Pre-Qualification: A mortgage pre-qualification is a low-effort application that gives you a ballpark idea of how much you could potentially qualify for. However, lenders typically only do a soft credit check (much less stringent than a hard check) and don’t verify the information you provide, so they’re under no obligation to do so. You may receive a pre-qualification letter, but it won’t be shared with sellers.
- Pre-approval: A pre-approval requires more research. The lender will review your basic financial situation. A pre-approval letter essentially states that you qualify to borrow up to a certain amount of money. This can be more helpful when you make an offer to buy a home because it shows the seller that you can afford it.
Essentially, pre-approval is a better indication of your ability to obtain a mortgage than pre-qualification.
Mortgage pre-approval and final mortgage approval
Just as pre-qualification is different from pre-approval, pre-approval is also different from actual mortgage approval.
- Pre-approval: A pre-approval isn’t a guarantee of a loan, it’s just a step towards approval. The lender will give you a brief overview of your financial situation and agree in principle to lend you money based on that.
- Final Approval: Lenders fully approve your application to borrow money to purchase a specific property. Lenders thoroughly review your financial situation and your intended purchase, including employment and income verification and an appraisal of your home. If this underwriting review has unexpected results, you may not qualify for the loan or the loan details may have changed.
How to Get Pre-Approved for a Mortgage
In many cases, you can get pre-approved for a mortgage by filling out an application online and, if necessary, speaking with a lender over the phone. If you prefer an in-person process, you can usually meet with a lender at a local bank branch. Here are some ways to expect to get pre-approved:
1. Choose a mortgage lender
To get the best rates and fees, it’s important to shop around before choosing a lender to get pre-approved for a mortgage. Research your options to identify the lender with the lowest rates and fees, read lender reviews to get a better understanding of past customers’ experiences, and apply in multiple places to compare mortgage offers.
2. Collect personal and financial information
To get pre-approved for a mortgage, you will need to submit documents containing information about your income, assets, and liabilities. These documents typically include:
- Pay stubs for at least the past 30 days
- W-2 for the past two years
- Proof of other sources of income (bonuses, commissions, child support, rental income, etc.)
- Account statements including checking, CDs, and retirement savings for at least the past two months
- Documents detailing your current loans
- A letter explaining any new loans you have recently taken out
A gift letter from someone who will give you money as a down payment
- Court records from recent divorces, bankruptcy, foreclosure, or other proceedings
- Landlord contact information if the lender wants to verify payment
- By showing identification (such as a driver’s license or passport), lenders can verify your identity and confirm that you are a U.S. citizen. Foreign nationals can also get loans, but the process is much more complicated.
Self-employed professionals may also need to include additional information and undergo an income audit. An income audit involves having an accountant verify whether your income is stable by speaking with your clients, reviewing business records such as income statements, and examining your tax returns.
The financial documents you create will need to be shared with any lender you apply for pre-approval with, so it’s best to have everything sorted out before you start looking for offers.
3. Check your credit report
In addition to submitting your paperwork, you’ll also have to agree to a rigorous credit check by the lender to ensure that you have a good enough credit score to buy a home.
That’s why it’s important to check your credit report before your lender does to look for errors that could affect your ability to get pre-approved or a favorable mortgage rate. Under federal law, you have the right to receive free copies of your credit report once a week from each credit reporting agency. These are available at AnnualCreditReport.com.
If you’re seeking a conventional mortgage, you’ll likely need a credit score of at least 620, but requirements can vary by lender. For a federally insured FHA loan, you’ll need a minimum score of 580 and a down payment of 3.5 percent.
Other government loans, such as VA loans or USDA loans, don’t have credit scores mandated by a federal agency and lenders set a minimum score. Generally, the higher your credit score, the lower the interest rate lenders will offer you and the better mortgage terms you’ll get.
4. Get pre-approved
Lenders typically offer flexibility when it comes to applying for pre-approval, allowing you to complete the process in person or online.
Many lenders use a “28/36” qualifying ratio to calculate the monthly payment you can afford when evaluating your application. Generally, lenders want your mortgage payment to be no more than 28% of your gross monthly income, and your total debt payments (which includes your mortgage plus credit cards, car loans and other debts) to be no more than 36% of your gross monthly income.
As mentioned above, lenders will also do hard credit inquiries, or “pulls,” on your credit. Lenders will look at your credit report and history to assess your credit utilization ratio, which is basically the outstanding balances on all your credit cards and how close they are to your total credit limit. The lower your credit utilization ratio, the better your chances of getting pre-approved for a mortgage.
A hard pull will drop your credit score by a few points, but the impact will diminish over time and disappear from your credit report after two years. The benefit is that multiple hard pulls for mortgage pre-approvals can be consolidated into one on your credit history. If you want to compare offers, try to get pre-approved from multiple lenders within 45 days to limit the impact on your credit score.
After the lender evaluates your credit and financial profile, they will decide whether or not to pre-approve you for a mortgage. If you are pre-approved, you will be issued a pre-approval letter that lists the approved loan amount and the maximum home purchase price, as well as the expiration date of the pre-approval. The letter also lists the type of loan and the terms.
Do I need to get pre-approved from multiple lenders?
Getting pre-approved from multiple lenders is a smart move. Not only will you get a lower interest rate, but you’ll also get an overview of how lenders handle mortgages, what fees they charge, and their customer service. Although a pre-approval is a hard credit inquiry and could lower your score by a few points, multiple pre-approvals within a 45-day period will count as one hard inquiry. (The credit bureaus consider them all for the same loan — you’re only living in one house, after all.)
The benefits of getting pre-approved for a mortgage
Whether you’re in a buyer’s or seller’s market, getting pre-approved is essential to purchasing a home. The purpose of pre-approval is to:
- Trust with sellers: Pre-approval shows sellers that you’re a serious buyer who can qualify for financing. It also makes your offer more compelling.
- Focused Housing Search: Pre-approval allows you to limit your home search to only those properties within your budget, saving you time and avoiding the disappointment of falling in love with a home that’s out of reach.
- Rate Shopping: Getting pre-approved from multiple lenders makes it easier to compare mortgage offers. Plus, it gives you the opportunity to find a lower interest rate (or a better mortgage deal), which could save you thousands of dollars over the life of your loan.
Mortgage Pre-Approval Timeline
If you start your mortgage pre-approval process early and keep track of your application’s progress, you’re more likely to get pre-approved sooner. And the sooner you’re approved, the sooner you can start seriously searching for a home.
How far in advance should you get pre-approved for a mortgage?
The best time to get pre-approved for a mortgage is before you start your house hunt. If you don’t and find a home you like, it may be too late to start the pre-approval process if you want to make an offer on it. Also, sellers often want to see a mortgage pre-approval letter as part of their offer, and definitely before closing. Once you know you’re serious about buying a home (which includes arranging the finances to buy a home), you should apply for a pre-approval from a trusted lender.
How long does it take to get pre-approved?
Depending on the mortgage lender you use and your qualifications, you may get pre-approved in as little as one business day, but it could take several days to a week, or even longer if you have to undergo an income audit or other verifications.
Generally, if your paperwork is in order and your credit and financial standing are good, you can get pre-approved quickly.
How long is a pre-approval valid for?
Most mortgage pre-approvals are valid for 90 days, but some lenders may only approve a 30-day or 60-day pre-approval.
If your pre-approval has expired, renewing it can be as simple as the lender rechecking your credit and finances to make sure nothing much has changed since the first time around—but keep in mind that this will count as another hard pull on your credit and could drop your score by a few points.
What to do after you get pre-approved
So start your search! Searching for homes with a pre-approval letter shows you’re serious about buying a home and are financially prepared to do so.
Pre-approval letters are valid for a certain period of time, so don’t wait too long after receiving your pre-approval letter to start looking for a house. If your financial situation changes dramatically or the appraisal value of the home you want drops significantly, you may not be able to get the mortgage you were pre-approved for.
Once you find a suitable home and your application is approved, it’s time to formally apply for a mortgage. Even with pre-approval, the mortgage approval process can take several weeks as the lender reviews your financial situation and the home, and conducts an appraisal to determine fair market value.
While you wait, continue to monitor mortgage interest rates. Keep in mind that pre-approval doesn’t lock in a specific interest rate. You still need to complete a mortgage application to lock in your rate.
What to do if your mortgage pre-approval is rejected
If you don’t get pre-approved, ask the lender why you were denied. If it’s an issue you can fix, like an error on your credit report that’s causing the lender to deny your application, you can address it right away and ask for pre-approval again once it’s resolved.
If your credit score is too low or other financial obstacles are preventing you from getting pre-approved, you can work to improve those areas, such as making payments on time and reducing (or paying off) your debt to raise your credit score or finding ways to increase your income to lower your debt ratio.
Some lenders have very strict qualification criteria, so you may have the option of working with a different, more flexible lender. If you’re an existing account holder with a local bank or a member of a credit union, these institutions may be more willing to work with you on a pre-approval.
Mortgage Pre-Approval FAQs
Additional reporting by Jess Ulrich
