How to Get Preapproved for a Mortgage

Buying a home is one of the biggest financial decisions you’ll ever make, and anything that gives you an advantage during the initial stages is a plus.

Getting preapproved for a mortgage can be the first step toward homeownership. It may strengthen your offer in a competitive market and speed up the buying process.

What is mortgage preapproval?

A preapproval letter is a statement from a lender indicating they are tentatively willing to offer a loan up to a specified amount. The letter is based on assumptions and does not guarantee a loan offer, but it lets the seller know that you are likely to be able to get financing – pending further confirmation of details.

Sellers often require a preapproval letter before accepting an offer on a house.^[1] Applying for a preapproval may affect your credit score, resulting in a hard credit check which may lower you score temporarily.

Why get preapproved for a mortgage?

There are lots of benefits from gaining mortgage preapproval, such as gaining an advantage on other buyers, allowing you to set realistic targets, and it could also save you time.
Here’s why a preapproval is important:

• Shows that you’re a serious buyer: A preapproval letter helps you shop for a home, showing the seller that you’re a serious buyer, with a statement from a lender tentatively willing to lend money to you.
• Sellers frequently require one: You may need one before getting a bid on a house accepted.
• Speed up the process: A huge part of the groundwork has already been done by examining your credit. This could mean that it may help speed up the closing process, also preventing delays or surprises later.^{[1] [2]}

Factors that can affect a mortgage preapproval

Debt-to-income (DTI) ratio

Debt-to-income (DTI) ratio compares your monthly debt payments to your gross monthly income. Lenders use this ratio to assess your ability to manage mortgage payments alongside existing debts.

There are two types of DTI:

• Front-end DTI includes only housing-related costs, such as your mortgage, property taxes, and insurance.
• Back-end DTI includes all monthly debt obligations, including housing, credit cards, car loans, and student loans.
  Lenders may prefer a front-end DTI ratio of 28% or lower, while FHA loans may allow up to 31%. For back-end DTI ratios, lenders often look for a ratio of less than 43%, though some prefer under 36%. However, conventional loans backed by Fannie Mae or Freddie Mac may permit DTIs as high as 50% in some cases.^[3]

Loan-to-value (LTV) ratio

The loan-to-value (LTV) ratio is a key metric lenders take into account for the preapproval process. It compares the loan amount to the appraised value of the home and determines how much equity you have in the property.

A lower LTV is typically preferred because it indicates less risk to the lender, improving your chances of being approved for a home loan or preapproval. Generally, an LTV ratio of 80% or less allows you to avoid mortgage insurance on a conventional home loan, though some lenders and loan types allow for higher LTV ratios. Government-backed loans, such as those from the FHA, VA, or USDA, often allow LTV ratios above 90%. For example, FHA loans permit a minimum down payment of 3.5%, while VA and USDA loans may offer up to 100% financing. These options typically include mortgage insurance or added fees to help offset the higher risk to the lender.^[4]

Credit Score

Credit score is an important factor in determining whether you may be approved for a mortgage preapproval. Lenders typically require a minimum score of 620 for a conventional loan, although requirements can vary by lender and loan type. For example, FHA loans may accept scores as low as 580 with a 3.5% down payment, while VA and USDA loans don’t have a fixed minimum score but lenders often look for scores in the low-to mid-600s range.

Before applying, it may be helpful to check your credit score, get a general idea of where you stand and ensure there are no errors on your report that could affect your application. Submitting a formal preapproval application may impact your score, depending on the lender’s process.^[5]

Income

Lenders review your W-2s, tax returns, pay stubs and proof of earnings as part of the preapproval process. This is to determine if you can afford mortgage payments. Additional sources such as bonuses, and rental income may also be considered.^[6]

Employment history

Lenders may assess your employment history during the preapproval process to evaluate your income stability and ability to repay the loan. While a two-year employment history is generally preferred, it’s not an absolute requirement. If you’ve recently changed jobs, you could still qualify.^{[6] [7]} When applying for a mortgage, a lender may view you as high-risk if you’ve been unemployed or had several jobs in the previous few years. Generally, the income requirements are that you have a steady employment history and earn enough money to make payments.^[7]

For those that are self-employed, it is possible to get a mortgage but it may require more documentation than a full-time employee. This could include year-to-date profit, loss statements, and a list of accounts receivable.^[6]

How to get preapproved for a mortgage

Check your credit score and history

Determining your credit score before beginning the process helps you know what type of mortgage rates you can expect. The higher the score, the better the interest rates.

Lenders typically require a credit score of 620 or higher to qualify for a mortgage. Since submitting a preapproval application may impact your credit score, it could be helpful to check your score for free, using a credit score tool in advance.^[5]

Calculate your debt-to-income ratio

Your debt-to-income (DTI) ratio is considered when applying for mortgage preapproval. If your DTI is high, it might be helpful to work on lowering it before moving forward with your application.

DTI measures the percentage of your gross monthly income that goes toward debt payments. Lenders often use the 28/36 rule as a guideline, meaning you should ideally spend no more than 28% of your income on housing costs and no more than 36% on all monthly debt obligations combined, such as mortgage, student loans, credit cards, and car loans.

If your DTI is higher than this, some lenders may still approve you, but you might face higher interest rates or added costs like mortgage insurance to offset their risk.^[8]

Gather your financial documents

Lenders need to verify your income, savings, DTI and assets before accepting your preapproval application.

Thus, you will be required to submit your documents. Here are some of the essential documents that you’ll need:

• Pay stubs
• W-2 forms
• Tax returns 1099 forms (if you are self-employed)
• Social security number
  You may also need other documentation such as:
• Employment history
• Proof of assets (ie. bank statements, investment account statements)
• Identification (driver’s license or other form of ID) ^[6]

Shop around mortgage lenders

Get the best deal on your home loan by browsing what’s out there. Compare interest rates, fees, and other requirements before committing to a lender. Preapproval from multiple lenders won’t hurt your credit if done within 45 days.

The home loan and lender that you choose will have an effect on your monthly payments (the amount and term). Each lender has its own guidelines and different interest rate options that may change the monthly cost.^{[9] [10]}

Apply for mortgage preapproval

The final step in the preapproval process is to submit an application (online, on the phone or in-person) via the lender’s website or telephone number. Online applications typically can take around 10-20 minutes to complete and ask for details such as your personal information, Social Security number, financial background, and the type of loan you’re applying for.

After you’ve completed the application, the lender will pull a tri-merge credit report, a comprehensive report from the three main credit bureaus (Experian, TransUnion, and Equifax) that shows credit scores and credit history.^[11]

When to begin the preapproval process

Buyers should apply for mortgage preapproval before they start actively house hunting. Preapproval can be granted within one to three days, and lenders often issue the letter the same day.^[12]

A look at the approval timeline

A mortgage preapproval takes one to three days to reach a verdict. If approved you’ll receive your letter the same day.

Here’s a look at the approval timeline:^[13]

• Preapproval application: 1 day
• Financial evaluation: 1-2 days
• Preapproval letter: Typically same day that it’s approved

Don’t apply too early

Since preapprovals typically last 60 to 90 days, it’s important to ensure that the letter remains valid throughout the home search process. If your preapproval letter expires and you wish to become preapproved again, you’ll need to resubmit financial documents and undergo another credit check to renew it.^[13]

Don’t apply too late

Waiting until you’ve already found a home to apply for a preapproval can delay your purchase and contradict the benefits of getting preapproved. When done in advance, mortgage preapproval speeds up the buying process, ensuring a smoother transaction.
Your preapproval letter serves as proof of financial readiness but if you apply too late, you won’t be able to show the seller your letter which could lead to you losing out.^{[12] [13]}

What to do once you’re preapproved

Steps after the lender approves mortgage preapproval include house hunting, working with a real estate agent and signing for the loan.^[14]

1. Obtain your preapproval letter

Once preapproved, your lender will provide a letter detailing your loan type, amount, and terms. This document offers sellers confidence in your ability to close the deal.

2. Hire a buyer’s estate agent

You may want to engage a real estate agent who specializes in representing buyers. They can guide you through the home search, offer process, and negotiations, ensuring your interests are well-represented.

3. Shop for homes

With your agent, explore properties that align with your preapproved amount and personal preferences. Visiting homes in person can help refine your criteria and expectations.

4. Make an offer with a preapproval letter

When you find a suitable home, you may work with your agent to craft a competitive offer. It's advisable to request an updated preapproval letter matching the offer amount, demonstrating to sellers your serious intent and financial capability.

5. Continue the search if necessary

It can be common for initial offers to be declined. It can be important to stay persistent and to browse the market for other potential houses.

6. Secure an accepted offer

Once a seller accepts your offer, you'll typically need to provide an earnest money deposit, signaling your commitment to the purchase.

7. Shop around for mortgage rates

Even after preapproval, it's beneficial to compare mortgage rates from different lenders. However, consider the timelines and potential risks, especially if your financial situation is complex.

8. Update your loan file with the lender

Submit the purchase agreement to your lender and provide any updated financial documents. The lender will order a home appraisal and may request additional information to proceed with underwriting.

9. Order home inspections

Arrange for a general home inspection and any specialized inspections (e.g., roof, termite) as needed. These assessments can uncover issues that may require repairs or renegotiation with the seller.

10. Sign final loan documents

After final loan approval, you'll sign the necessary documents, either at an escrow office or another agreed-upon location. Be prepared to provide the down payment and closing costs at this stage.

11. Await loan funding

Post-signing, the lender will finalize the loan funding. Stay accessible during this period in case additional information or signatures are required to complete the process.

12. Receive the keys to your new home

Once the loan is funded and the transaction is recorded, you'll receive the keys to your new home, marking the completion of your home buying journey.

The difference between prequalification and preapproval

While lenders sometimes use the names interchangeably, they do have key differences. Pre-qualification is a quick, initial assessment based on self-reported financial details. This gives you an estimate of how much you might be able to borrow.

Preapproval is a more thorough process, requiring verification of income, credit and assets. The preapproval process is comprehensive and reviews your financial situation.

Neither guarantee you a loan approval but they can help you understand your budget in the early stages of buying a home.^[15]

Sources

1. Consumer Financial Protection Bureau. "Get a Preapproval Letter." https://www.consumerfinance.gov/owning-a-home/explore/get-a-preapproval-letter/.
2. Quicken Loans. “When to Get Preapproved for a Mortgage: A Guide,” https://www.quickenloans.com/learn/why-you-should-get-your-mortgage-approval-before-finding-a-house.
3. Experian. "How to Calculate Your Debt-to-Income Ratio." https://www.experian.com/blogs/ask-experian/how-to-calculate-your-debt-to-income-ratio.
4. Experian. "What Is Loan-to-Value Ratio and Why Is It Important?" https://www.experian.com/blogs/ask-experian/what-is-loan-to-value-ratio-and-why-is-it-important/.
5. Zillow. "How to Get Pre-Approved for a Mortgage." https://www.zillow.com/learn/pre-approval/.
6. Bankrate. "Documents Needed for Mortgage Preapproval." https://www.bankrate.com/mortgages/documents-for-preapproval/.
7. Own Up. "Why Lenders Care About Your Employment History." https://www.ownup.com/learn/why-lenders-care-about-your-employment/.
8. Ramsey Solutions. "How Much House Can I Afford?" https://www.ramseysolutions.com/real-estate/how-much-house-can-i-afford.
9. Consumer Financial Protection Bureau. "What Happens When a Mortgage Lender Checks My Credit?" https://www.consumerfinance.gov/ask-cfpb/what-exactly-happens-when-a-mortgage-lender-checks-my-credit-en-2005/.
10. Credit Karma. "What Is Mortgage Preapproval and How Does It Work?" https://www.creditkarma.com/home-loans/i/mortgage-preapproval.
11. The Mortgage Reports. "How to Get Mortgage Preapproval in 3 Steps." https://themortgagereports.com/62952/how-to-get-mortgage-preapproval-in-3-steps.
12. Experian. "How Long Does a Mortgage Preapproval Last?" https://www.experian.com/blogs/ask-experian/how-long-does-a-mortgage-preapproval-last/.
13. Zillow. "How Long Does Preapproval Take?" https://www.zillow.com/learn/how-long-does-pre-approval-take/.
14. Mortgage Research. "What Happens After I Get Pre-Approved for a Mortgage?" https://www.mortgageresearch.com/articles/what-happens-after-i-get-pre-approved-for-a-mortgage.
15. Equifax. "Pre-Qualified vs. Pre-Approved: What’s the Difference?" https://www.equifax.com/personal/education/personal-finance/articles/-/learn/difference-between-pre-qualified-and-pre-approved.

About the author

Becca has over 10 years of experience as a content writer, working across various industries including finance, digital marketing, education, travel, and technology. Her work has been featured in publications including Forbes, Business Insider, AOL, Yahoo, GOBankingRates, and more.

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