How Do I Get a Mortgage Pre-approval?
Getting pre-approved for a mortgage can feel like walking into unfamiliar territory. You’re excited, but maybe also a bit anxious, wondering if your credit history and finances will meet the requirements.
The good news? Getting preapproved doesn't have to be a mystery. With the right steps, you’ll feel empowered, not overwhelmed.
In this guide, we’ll break down exactly how to get pre-approved for a home loan, so you can move forward confidently.
Ready to make your homeownership dreams a reality? Start your mortgage pre-approval process with Rate today for fast approvals and personalized service.
What Is a Mortgage Preapproval?
A mortgage preapproval is a golden ticket to begin your home-buying process. It’s a mortgage lender’s conditional agreement to loan you a certain amount of money based on your financial situation.
Before issuing a mortgage pre-approval letter, the lender reviews your credit history, income, assets, and debts. This letter shows home sellers you’re a serious buyer.
How Preapproval Differs from Prequalification
You might hear the terms "mortgage preapproval" and "mortgage prequalification" used interchangeably, but they’re not the same. Understanding this difference is crucial especially for homeowners looking to refinance or secure a loan for a new home.
Think of mortgage prequalification as window shopping, while preapproval is putting your favorite item on hold.
Prequalifying for a home loan is a simpler, less formal step than preapproval.
Preapproval is essential when working with a real estate agents or negotiating with home sellers. The best mortgage lenders will guide you through the process and help you choose the right loan option.
What are the 5 Steps to Getting a Mortgage Preapproval?
Step 1: Determine Your Budget
Before starting the pre-approval process, assess your budget. Decide how much you can afford for a down payment based on your savings and potential financial gifts from family.
Our mortgage payment calculator can help estimate your monthly payments, giving you a clearer picture of your budget.
Step 2: Check Your Credit Reports and Scores
Get credit reports from the three major credit unions: Experian, TransUnion, and Equifax. Review them for errors or fraudulent activity. Knowing your credit score helps gauge how lenders might view your application.
Step 3: Collect Your Documentation
Gather all the necessary financial documents to ensure the pre-approval process goes smoothly.
What documents do I need for mortgage preapproval?
You’ll need pay stubs, tax returns, bank statements, and documentation of any assets you own. These financial documents help the lender assess your financial health.
What documents do self-employed individuals need for mortgage preapproval?
Self-employed individuals should provide additional documents, such as profit-and-loss statements, two years of tax returns, and possibly a letter from an accountant verifying income.
Step 4: Complete a Mortgage Application
Once your documents are in order, you’re ready to complete the loan application.
Be prepared to provide information on your income, debts, and assets. The lender will also ask for details about the home you’re hoping to buy, including the home purchase price and address. You may need to provide identification, such as a driver’s license or social security number.
With our digital mortgage, this can all be done in about 10 - 15 minutes on your phone or computer.
After you’ve completed the application, submit it and all the gathered documentation. We’ll use this information to evaluate your financial situation and determine your pre-approval status.
Step 5: Pre-approval Decision and Letter
After reviewing your application and documents, the lender will issue a preapproval decision. If approved, you’ll receive a preapproval letter.
What does a preapproval letter include?
The letter outlines the loan amount you’re approved for, as well as the terms of the loan. This letter is essential when working with real estate agents and home sellers during the house hunting process.
What Are The Requirements for a Mortgage Pre-approval?
Credit Score Requirements
Most lenders require a minimum credit score of 620 for a conventional loan. But the higher your score, the better your chances of securing favorable loan terms, whether you’re a first-time home buyer or experienced buyer.
Debt-to-income Ratio
Lenders also pay close attention to your debt-to-income ratio (DTI), which is the percentage of your monthly income that goes toward paying off debt. Ideally, your DTI should be below 36%.
Employment and Income Verification
Lastly, lenders want to see a stable employment history and consistent income. However, if you've recently changed jobs or are self-employed, you’ll need to provide more documentation to prove your income stability.
What Determines Pre Approval for a Home Loan?
Several factors determine whether you’ll get pre-approved. Lenders consider your credit score, income, assets, and employment history. The credit check is particularly important as it is one of the biggest determinants.
Finally, your assets and savings give the lender assurance that you can cover the upfront down payment and closing costs without financial strain.
How Far in Advance Should you Get Preapproved for a House?
Timing your preapproval correctly is crucial to maximizing its benefits. Ideally, you should get preapproved a few months before you seriously start house hunting.
Pre-approval letters usually expire after 60 to 90 days, so you don’t want to get pre-approved too early. However, waiting until the last minute isn’t ideal either.
If you’re a homeowner thinking about refinancing, getting preapproved early gives you time to consider different loan options, including those that could help eliminate PMI (private mortgage insurance) on your current loan.
Why is it Important to Get Preapproved for a Mortgage?
Getting a preapproved for a mortgage allows you to set a price range that ensures any new home or type of mortgage you look at is one that you can finance.
Our home mortgage calculator can help you figure out how much your payment amount will be in the future so you can be sure you can afford the homes you are considering.
Many homeowners in competitive markets, like California or Texas, find that a preapproval can significantly speed up the buying process and allows you to make quick offers when you find the right home.
Pre-approvals also give you an advantage over buyers without pre-approval, as sellers are more likely to prioritize your offer.
Does a Mortgage Pre-approval Guarantee a Mortgage?
Sellers often prioritize offers that include pre-approval letters. When you present a mortgage pre-approval to a seller and in some cases proof of funds, you come across to the seller as a serious buyer.
You’ll want a pre-approval letter, particularly if you are competing with cash buyers.
Apart from a pre-approval letter, another tool you can use to enhance your buying power is our Powerbid Program*. This program helps you compete with cash buyers by providing full underwriting credit approval, which can be more effective than the traditional pre-approval letter and helps speed up your buying process.
Does a Mortgage Preapproval Hurt Your Credit Score?
Yes, your credit score significantly impacts your ability to get a mortgage pre-approval and the terms you will receive.
A minimum FICO score of 620 is often required for conventional loan and a FHA loan requires a minimum Fico score of 500. However, be mindful that a hard inquiry on your credit report can lower your score by a few points.
For those new to credit, opening a starter credit card and making consistent on-time payments can help build your credit profile.**
Is it Hard to Get Preapproved for a House?
It’s not necessarily hard to get preapproved, but it does require some preparation. If you’re concerned about qualifying, it’s worth taking some time to organizing up your finances and credit before applying.
Can You Negotiate Mortgage Rates with Lenders?
Yes, you can—and should—negotiate mortgage loan rates. Many people don’t realize that mortgage options are often negotiable, and a little bit of effort can save you thousands*** over the life of the loan. When you have multiple offers in hand, use them as leverage to negotiate for better terms.
Best Practices for Negotiating Mortgage Rates
When negotiating, it’s important to come prepared. Know your credit history, your financial standing, and the current mortgage market. By showing that you’ve shopped around and obtained offers from multiple lenders, you can create competition and potentially secure a better mortgage.
Should You Get Preapproved by More Than One Lender?
Yes, it’s smart to get preapproved by more than one lender because it allows you to compare rates, fees, and terms to find what works for you. Since credit bureaus treat multiple mortgage inquiries within a short period as a single inquiry, you won’t need to worry about a big impact on your credit score while shopping around.
How to Compare Lenders and Rates
When comparing lenders, look beyond just the interest rate and evaluate these factors together to get a clearer picture of the true cost of each loan option.
- Look at APR, Not Just the Interest Rate: APR reflects the true cost of borrowing by including the interest rate and additional fees, helping the borrower assess overall expenses.
- Request Loan Estimates: Get estimates from multiple lenders to compare fees and potential loan approval conditions.
- Analyze the Total Cost: Consider how the APR and fees impact the total cost over time, ensuring you choose the preferred loan for your financial situation.
- Review FAQs and Terms: Check each lender’s FAQs on eligibility and loan terms, and consider aspects like prepayment penalties and flexibility.
How to Start Your Digital Mortgage Preapproval Process
Ready to take the next step? Complete the Digital Mortgage application now to see if you get pre-approved. Our pre-approval process is digital, easy and gives you quick access to see what you can really afford!
Mortgage Pre-Approval FAQs
1. What documents should self employed individuals provide for mortgage pre-approval?
Self-employed individuals should provide tax returns for the past two years and a year-to-date profit and loss statement.
2. Can I get pre-approved for a mortgage if I have student loans?
Yes, lenders will consider your debt-to-income ratio, including student loans, when determining pre-approval.
3. Is it possible to get a mortgage pre-approval with a non-traditional credit history?
Yes, some lenders offer pre-approvals using alternative credit data such as rent payments, utility bills and other non traditional credit sources.
*PowerBid Approval (the “Approval”) is contingent upon receipt of executed sales contract, an acceptable appraisal supporting value, valid hazard insurance policy, and a re-review of your financial condition. Rate, Inc. reserves the right to revoke this Approval at any time if there is a change in your financial condition or credit history which would impair your ability to repay this obligation and/or if any information contained in your application is untrue, incomplete or inaccurate. Receipt of an application does not represent an approval for financing or interest rate guarantee. Not all applicants will be approved for financing. Restrictions may apply, contact Rate, Inc. for current rates and for more information.
**Rate, Inc. does not provide credit counseling or credit repair services.
***Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Contact Rate, Inc. for current rates. Restrictions apply.
Rate, Inc. is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the Nevada Department of Veterans Services, the US Department of Agriculture, or any other government agency. No compensation can be received for advising or assisting another person with a matter relating to veterans’ benefits except as authorized under Title 38 of the United States Code.