How To Get a Mortgage Preapproval

Mortgage advisor meets with older couple.

If you want to buy a home, you likely need a mortgage. One of the major steps toward buying a home is getting a mortgage preapproval, which details the amount and terms of the loan that a lender expects to offer after a cursory review of your finances.

A preapproval letter helps you buy a home because it shows real estate agents and sellers you can get funding and are ready to buy.

Here’s a look at what mortgage preapproval is, how it works, and how you can get it.

What Is a Mortgage Preapproval?

A mortgage preapproval is a letter from a lender that outlines the loan it expects to approve for you. It’s based on documents you provide about your income, credit history, and outstanding debts. It includes details such as the amount you can borrow, the interest rate, and the type of loan.

It’s important to know that preapproval doesn’t guarantee approval for the loan, and that the preapproval is good only for a limited time.

Is preapproval the same as pre-qualification?

Preapproval and mortgage pre-qualification are similar but not the same. Both involve a lender stating the terms of the loan it expects to offer you.

Pre-qualification is based on a very cursory review of your finances, and the lender might not require documentation or verify the information you provide. Pre-qualification typically is done early in the homebuying process for buyers to get an idea of how much they can afford to borrow.

Preapproval involves the lender taking a more thorough review of the borrower’s finances, including looking at pay stubs, tax returns, and bank statements. Preapproval generally is done when you start looking seriously at homes to buy, and usually is enough to let agents and sellers know you’re able to follow through on an offer.

Neither is a guarantee of a loan. Lenders will fully evaluate your finances when you officially apply for a mortgage, which happens after you’ve had an offer accepted, and signed a deal to buy a home.

Read More: What Types of Mortgages Have Low Down Payment Requirements?

Why Do I Need Mortgage Preapproval?

Sellers and real estate agents like to see proof that you can buy the home. Agents and Realtors often require preapproval before showing homes to prospective buyers, and many sellers require it to consider an offer.

Preapproval also gives you a head start on final mortgage approval, which should make that process smoother.

Mortgage Preapproval Pros and Cons

Here’s a look at the benefits and drawbacks of mortgage preapproval:

Mortgage Preapproval Pros and Cons

Pros of getting preapprovedCons of getting preapproved
Gives you a better sense of how much you can borrow.Temporarily dings your credit.
Strengthens your bid and helps you compete for a home.The letter has an expiration date.
Makes the process easier once you’re ready to make an offer.It’s not a final guarantee of a loan.

Related: Pros and Cons of Buying a Home

How To Get Preapproved For a Mortgage

The first step toward preapproval is to gather the documents that lenders usually need to review your finances, such as:

  • Personal identification.
  • Credit report.
  • Proof of income, including:
    • Pay stubs.
    • W-2s or 1099s.
    • Bank statements.
    • Tax returns.
  • List of debts.

Factors that will affect your eligibility include your:

  • Credit score and history.
  • Debt-to-income ratio.
  • Loan-to-value ratio.

You also need to decide on which type of home loan you want, and whether you’ll pay off the mortgage over 30 years, 15 years, or a custom loan term. Keep in mind that with a fixed-rate mortgage, your interest rate will never change, but with an adjustable-rate mortgage, the amount of interest you’re paying can vary.

Conventional Loan Alternatives: What Are Other Types of Mortgages?

How Long Does It Take To Get a Mortgage Preapproval?

Some lenders provide a preapproval in as little as one business day, while others can take several days. Gathering the necessary documents in advance can streamline the process.

How Long Is Mortgage Preapproval Good For?

Preapproval letters usually are valid for 30, 60, or 90 days. Because preapprovals expire, you won’t want to get one too far in advance. Plan accordingly on when to apply for preapproval.

What Does a Mortgage Preapproval Letter Look Like?

Here’s what a typical preapproval letter from a lender might look like.

Mortgage Preapproval Letter

Date: ____________

From: Your Lender

Address: 1234 Main St.

City: Anytown

State: Anystate

ZIP: 12345

Re: Mortgage preapproval letter

Dear Borrower:

Congratulations! Based on the information furnished by you, we are pleased to inform you of preapproval for a residential home mortgage loan with the following parameters:

Property address: ______________

Sales price: $__________________

Loan amount: $________________

Term of loan: _________________

To obtain final approval of the loan, the following conditions must be met:

* Satisfactory purchase agreement.

* Sufficient appraisal for the property.

* Marketable title to the property.

Please note that your loan will need to be underwritten and given official approval before funding of the property is to take place. This is not a commitment to lend, and you are not required to obtain a loan simply because you have received this letter.


Your Lender

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Mortgage Preapproval FAQ

Here are answers to some frequently asked questions about mortgage preapproval.

Does preapproval hurt your credit?

Mortgage preapproval can reduce your credit score — but the damage is temporary and minimal. When the lender pulls your credit, a hard inquiry that indicates you’ve taken on new debt will be marked on your report. The hard inquiry will remain on your credit for a limited time, and typically disappears after two years.

Can you get denied after preapproval?

Yes. Your loan could be denied if there are major changes to your financial situation between getting preapproved and when you apply for a mortgage. For example, if you lose your job and your credit score drops, lenders may reassess whether you qualify.

How many preapprovals should you get?

It’s a good idea to get several preapprovals so that you can compare offers to find the best interest rate and terms. The Consumer Financial Protection Bureau recommends that you contact at least three different lenders.

Related Article: What Is Mortgage Pre-Qualification vs. Preapproval?

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