Guide to Mortgage Pre-Approval: Get Pre-Approved Today
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If you're looking to buy a home, you'll likely need to qualify for a mortgage to pull that purchase off. But before you apply for an actual mortgage, it pays to get pre-approved.
A mortgage pre-approval may help you determine whether you're in a strong enough position to buy a home, as well as how much money you can borrow.
Our form below will guide you through each step of the process.
Mortgage pre-approval is the process of getting a lender to approve you for a loan and set out specific details of the loan you qualify for. After you provide detailed financial information, your lender will offer a pre-approval to borrow up to a specific amount at a designated interest rate.
Final approval for your loan will be subject to verification that your financial circumstances haven't changed. The lender will also need an appraisal and other information about the property you're buying to ensure it can serve as sufficient collateral for the loan. But as long as your situation remains the same and the property is appropriate to guarantee the loan, you should be able to borrow at the terms offered by the lender in your pre-approval.
Pre-approvals are generally good only for a limited period of time, which is usually between 30 and 90 days, depending on the lender. You can get pre-approved by multiple lenders so it's ideal to shop around for the best personalized loan offer, but some lenders are much faster with issuing pre-approvals than others. You can expect to wait anywhere from several days to several months to get pre-approved.
There are a few key steps you'll need to take to get pre-approved for a mortgage. These include:
Your credit is a key factor in determining if you'll be pre-approved and what rate you'll be offered. Use your credit score to see which mortgage you are likely to qualify for. If your credit is poor, look into government-backed loans that are better suited to people with lower credit scores, such as an FHA loan. You'll also want to look closely at your credit report to make sure there are no errors to correct. If there are mistakes, get them fixed before applying.
Your lender will pre-approve you for a loan amount based on your credit score, income, and debt levels. But you shouldn't necessarily accept the largest loan you're offered, as spending too much on a house can interfere with other financial goals. Decide on the maximum you want to borrow based on your goals for home ownership and the monthly payment amount that fits comfortably into your budget.
You will need lots of financial paperwork to get pre-approved, including proof of income and assets. Tax returns, W-2s or 1099s, and pay stubs from your employer can all provide proof of income while bank statements and investment account statements show potential lenders the value of your assets. Lenders like to see that you have worked for the same employer for at least two years and that you have liquid cash, or money accessible to be used as your down payment or to cover mortgage costs.
Banks, online lenders, and credit unions all offer mortgage loans. Tips for choosing the right lender include understanding the different types of mortgages and researching lenders and mortgage rates. It is a good idea to get pre-approved by several lenders so you can compare the terms of your loan. Some lenders also make pre-approval much simpler and faster than others. Shop around the best mortgage lenders to find the right deal for you. If you have an existing relationship with a bank, that lender may also be more willing to work with you and approve your loan.
You can often do the process entirely online, including submitting scanned or electronic copies of your financial documents. Your lender will ask for permission to do a credit check and will have forms for you to sign. The credit check not only helps lenders determine if you've been a responsible borrower but also shows what other outstanding debts you have. If your debt-to-income ratio is too high, you may not be able to get approved for a loan.
Lenders will determine the amount you can borrow and the rate at which you can borrow. If you're approved, you'll receive a letter outlining the details including your maximum loan amount, the mortgage loan term, and your mortgage rate. You can then decide if you want to accept the loan.
Be aware that pre-approval is not a 100% guarantee you'll be able to borrow. Make sure you act within the specified time. If you do, you should get the loan at the agreed-upon terms -- assuming your financial situation stays the same and the house appraises for enough to serve as sufficient collateral.
Read more about mortgage pre-approval:
As soon as you are serious about buying a home, you should get pre-approved for a mortgage. It's fine to do some preliminary house hunting beforehand, but you should get your mortgage pre-approved before you sink a lot of time into looking at homes in person, or even online. If you have a good idea of what you're looking for and think you'll want to make an offer within the next month or two, it makes sense to get a pre-approval letter.
Fortunately, the pre-approval process is fairly simple, and it may also save you some of the legwork involved in getting an actual mortgage. You'll need to provide the lender with certain documentation, including:
Your lender will use that information, coupled with the details it pulls from your credit report, to determine what mortgage amount you may qualify for.
Just as it's a good idea to shop around for the best mortgage lenders for your actual mortgage, it also makes sense to get pre-approved by more than one lender. Different lenders have different standards and guidelines when determining mortgage eligibility. Getting pre-approval from multiple lenders means you'll be able to choose the offer that works best for you.
You might assume that if a lender has given you a mortgage pre-approval letter, you're guaranteed to get a home loan. Not so.
The pre-approval process is just a preliminary review of your qualifications to take out a mortgage, but it doesn't guarantee that you'll ultimately get a home loan. The reason? Your financial circumstances could change between when you seek pre-approval and when you actually apply for a mortgage.
Imagine you're gainfully employed when your pre-approval letter is issued, but you don't apply for an actual mortgage for another 90 days. If, during that time, you lose your job or your income drops, your lender is unlikely to approve you for the same mortgage amount -- or any mortgage at all. Similarly, if you take on additional debt between the time of your pre-approval and your actual mortgage application, your lender may hesitate to grant you a home loan.
Furthermore, lenders' loan requirements occasionally change. Perhaps your credit score was deemed acceptable at the time you sought pre-approval, but now your lender requires a higher score. Even though nothing changed on your part, that change in guidelines could mean your mortgage application is denied.
Another important thing to keep in mind: You may hear the terms "mortgage pre-qualification" and "mortgage pre-approval" used interchangeably, but they're a bit different. Though neither guarantees actual mortgage approval, the pre-approval process is far more involved than pre-qualification, requiring you to submit thorough financial documentation so a lender can determine your eligibility for a mortgage. With pre-qualification, you provide less financial information, and the process is less formal. As such, pre-approval carries more weight than pre-qualification and is the better option if you want to present yourself as a serious buyer.
When you seek out mortgage pre-approval, your lender will ask to review your credit report to make sure there are no financial red flags. This is known as a hard inquiry, and it could lower your credit score slightly. However, the credit bureaus that determine your score recognize the need to shop around. Therefore if you seek pre-approval from multiple lenders within a short time frame (specifically, within 30 to 45 days), all those inquiries will only count as a single inquiry in the credit bureaus' eyes. That means your credit score won't take multiple hits.
Getting pre-approved for a mortgage sends the message that you're a serious buyer with the finances to back up any offer you make on a home. It could also help you approach your home search more strategically, as it you'll have a clearer idea of what you can afford. But be careful: While it pays to get pre-approved for a mortgage, you must first assess your finances to see if you're ready. If your credit score needs work, or your job isn't steady, you're generally better off fixing those issues first and then requesting mortgage pre-approval.
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