How to get pre-approved for a mortgage

Getting pre-approved for a mortgage is a smart decision that could save a borrower time when looking to purchase a home and ease the process. 

Understanding what a pre-approval is, how it works and steps you need to take to get pre-approved for a mortgage are the first steps you should take if you think a pre-approval could benefit you. 

If you plan to get a mortgage pre-approval, you can start with an application today! 

What is a mortgage pre-approval?

A mortgage pre-approval is a document that tells borrowers what their loans could look like. A pre-approval includes the loan amount and interest rate.  

Pre-approvals can be used as you shop for a home by showing sellers that you are a serious buyer and, as the name suggests, already approved for a mortgage. Pre-approvals last for about three months of home shopping. 

The difference between pre-qualified and pre-approved

Unlike a pre-approval, pre-qualifications are not as in-depth and aren’t as accurate. 

Keep in mind pre-approvals are just an estimate of what a potential buyer could qualify for. But because pre-qualifications are just an estimate, they cannot be used when shopping for a home. 

Why a pre-approval letter is essential for home shoppers

Pre-approval letters can help ease the process of shopping for a home and give a borrower important information to use while shopping. 

Since pre-approval letters come from a lender, they can be used to show sellers that you qualify for a mortgage amount that would cover the home purchase price. This saves time after finding a home when someone could come in purchase the home from under you. 

With a pre-approval letter, you can save time by focusing on homes within your approved loan amount. It also helps you plan for what your future monthly payments may be. 

When should you get pre-approved for a home loan?

If you are looking to get a mortgage pre-approval, you should consider getting it before you start looking at homes. Getting a pre-approval before you start the search for a home allows you to budget and focus on homes in your price range.  

Remember, your pre-approval won’t last forever. When you talk to your lender, ask how long your pre-approval will last. Pre-approvals typically last about three months. 

Step 1: Gather your financial documentation

To get a mortgage pre-approval, your lender will need to review your financial documents. Gathering documents beforehand will help you prepare to start your pre-approval. 

Proof of income: W-2s, pay stubs and tax returns

Your income plays a big part in determining how much you could afford to borrow. A lender will ask from proof of income in the form of pay stubs and tax returns for salaried employees or a form1099 and tax returns for self-employed workers. 

Proof of assets: Bank statements and investment accounts

Lenders look at your assets to make sure you have the funds to cover a down payment, closing costs and any monthly payments in the event that your financial situation changes. Your proof of assets could include available cash, savings and any investments or retirement amounts you have. 

Personal identification and Social Security numbers

It shouldn’t be a surprise that lenders also want to see your identification for a loan. This could be a driver’s license and Social Security number, but some lenders might allow you to use a passport or state/federal ID. 

Step 2: Review your credit report and score

Your credit history is one of the biggest factors in determining the mortgage you qualify for. Reviewing your credit report and score could prepare you for the kind of loan you will get. It will also give you the time to boost your credit score if you need to. 

Understanding the ‘hard pull’ on your credit

When you start the pre-approval process starts, your lender will perform a “hard pull,” or hard inquiry, on your credit. This will show lenders your credit worthiness and will cause a slight but temporary dip in your credit score. 

How your credit score affects your pre-approval amount

Because your credit score shows lenders your credit worthiness, your score will directly influence the loan amount and rates you qualify for. A higher credit score could get you a lower rate and higher loan amount. The inverse happens with a lower credit score: higher rate and lower loan amount. 

Step 3: Calculate your down payment and monthly budget

When you consider a mortgage pre-approval, calculating the down payment you could make and what your monthly budget may be are the smartest things you can do. Knowing how much you are able to spend lets you plan your financial future and prepare for the cost of a loan. 

Determine how much house you can actually afford

Calculating your down payment and monthly budget when you get your pre-approval can show you how much home you can afford without spreading yourself too thin. This is helpful when preparing your financial future and getting ready for the cost of purchasing a home. 

Account for property taxes and homeowners insurance

When calculating how much buying a home will cost, make sure you aren’t overlooking property taxes and homeowners insurance. These amounts will vary based on your home size and location. Talk to your lender if you need help figuring out these amounts as they may have a better idea of the costs. 

Step 4: Choose a lender and submit your application

Choosing a lender can make all the difference in your mortgage, pre-approval and application. Finding the right lender for your situation is one of the most important things you will do when looking to get a mortgage and buy a home. 

Compare rates and fees from multiple lenders

When choosing the right lender, one of the first things you will want to do is compare rates and fees that each lender offers.  

Some lenders have more expenses that are passed on to you through higher rates and more fees, while other lenders have fewer expenses that they pass on to you through lower rates and less fees. Comparing lenders based on rates and fees could help you see which lender would charge you more and which ones could help you save money. 

The role of the Loan Officer in the pre-approval process

A Loan Officer will collect and review your documents and help see what kind of mortgage you qualify for during the pre-approval process. Loan Officers are also available to answer any questions you may have. When comparing lenders, look at the role their Loan Officers play, when they are available to you and if they stay consistent during the life of your loan.  

What to expect in your mortgage pre-approval letter

Knowing what to expect in your mortgage pre-approval letter could prepare you for next steps before starting the search for a home. 

Understand your loan amount and interest rate

The loan amount on your pre-approval letter is the most you are able to borrow from a lender. However, this does not mean you have to use the entire amount. It is just the highest amount available to you from that lender.  

The interest rate on your mortgage pre-approval letter is based on the market rate when you get your letter and your financial situation at that moment. Of course, if there is a major change in either the market rate or your financial situation after you get your letter, your rate could shift. 

Expiration dates: How long is a pre-approval valid?

​Mortgage pre-approval letters are valid about three months. During those months, you can plan your financial future and shop for a home. If you are unable to find a home in the months you have, you will be required to get a new mortgage pre-approval letter from your lender.  

Make sure you ask what your lender’s exact pre-approval length is so you are not surprised if it ends. 

Next steps after receiving your pre-approval

When you receive a mortgage pre-approval, you can plan a budget and look for your new home. 

With a pre-approval, you will have an idea of what your mortgage will look like and can plan your monthly payments. After that, you will be prepared to start looking at homes to purchase in your price range. 

Are you ready to start your mortgage pre-approval? Complete an online pre-approval application. 

_{Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.} 

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