How to Get Mortgage Pre-Approval

Getting pre-approved for a mortgage can be a crucial first step in your homebuying journey. It gives you a clear idea of how much you can afford and shows sellers that you're a serious buyer with financing in place. Whether you're a first-time homebuyer or looking to upgrade, securing a mortgage pre-approval can give you a competitive edge in today's market.

Read on to learn more about mortgage pre-approval, how it differs from prequalification or full approval, when and how to get pre-approved for a home loan, why this is a smart idea, and the pre-approval home loan steps involved.

Key takeaways

1. Mortgage pre-approval is the first step in evaluating your borrowing capacity, where lenders analyze your income, debts, and credit score.

2. Securing a pre-approval letter is essential in competitive real estate markets, as it signals to sellers that you are a committed buyer with available financing.

3. Although it does not equate to full approval, pre-approval gives you a conditional agreement that enables you to begin searching for homes within your price range.

4. The pre-approval process involves reviewing your finances, gathering necessary documents, contacting lenders, and requesting pre-approval, which, if granted, is usually valid for 60 to 90 days.

What Does It Mean to Get Pre-Approved for a Mortgage?

Mortgage pre-approval is a preliminary assessment of your financial situation by a lender. The lender evaluates your debts, income, and credit score to determine how much you qualify to borrow for a home purchase. If pre-approved, the lender will provide a pre-approval letter indicating the loan amount you qualify for.

“This letter is valuable when house-hunting, as it demonstrates to sellers that you are a serious, naturally capable buyer,” says Lorelie Abedes with Click Cash Home Buyers.

Getting pre-approved is important, particularly in competitive markets.

“Pre-approval can be the difference between securing a home and missing out,” says Dennis Shirshikov, a professor of finance and economics at City University of New York/Queens College. “When sellers have multiple offers on the table, pre-approved buyers are far more attractive because they are viewed as serious contenders with financing already lined up.”

Ryan Norman, owner of custom home building firm Norman Builders, provides a worthy case in point.

“For example, one of our clients was pre-approved for $500,000 and found a home she loved at $475,000. Because she could immediately provide her pre-approval letter, the seller accepted her offer over two others without pre-approval,” he explains. “Had she not been pre-approved, she likely would have missed out on her dream home.”

Pre-Approval vs. Prequalification

Pre-approval is not the same as “prequalification.” It’s easy to get confused by these two terms, so let’s break down the differences.

Mortgage prequalification is a basic review of your financial standing based on self-reported estimated financial information that isn’t verified by the lender. It’s a good starting point, but it doesn’t carry much weight when you are ready to make an offer.

“Pre-approval, on the other hand, is more rigorous and involves a thorough review of your credit and financials, resulting in a conditional commitment from the lender,” notes Carl Holman, director of Communication and Content for A&D Mortgage. “Pre-approval is preferred because it’s more valued by sellers, who can feel more confident that your financing will be available when needed, and it gives you a clearer understanding of your borrowing capacity as well.”

That doesn’t mean getting prequalified is a waste of time, however. Prequalification can be particularly useful for first-time homebuyers, as it helps them set a realistic budget and provides an estimate of how much they may be eligible to borrow.

Pre-Approval vs. Full Approval

Receiving pre-approval means that the lender has conditionally agreed to lend you a certain amount of money. However, there is no guarantee that you will be fully approved for that loan later.

“Pre-approval gives you a green light to shop for homes within a certain price range, but it’s still conditional,” Shirshikov cautions. “Full approval happens after you found a home and the lender performs additional diligence – including appraising the property – to ensure it meets their lending criteria.”

Think of pre-approval as getting cleared for takeoff, while full approval is the plane actually leaving the ground once everything checks out, he adds.

Once pre-approved for a loan, you’ll need to complete and submit a loan application and await an underwriting decision (more on these steps later). If you pass the underwriting stage, you are given full approval. This is the final step before disbursement of funds at loan closing.

When to Get Pre-Approved

Borrowers should ideally get pre-approved early in the home-buying process, preferably before they start shopping for a home. This can be completed as early as a few weeks to a few months before making an offer.

Abedes advises seeking pre-approval as early as three to six months before you plan to make an offer. This timeline will enable you to address any financial issues, gather important documents, and ensure your pre-approval is active when you bid on a property.

“Pre-approval gives you a clear budget to work with and ensures that you are ready to act quickly when you find the right home, which is essential in fast-moving markets,” Holman says.

Pre-approval is valid for 60 to 90 days, so getting pre-approved a few weeks before you start house-hunting ensures that you will be ready to make an offer quickly when you find the right property, recommends Shirshikov.

“The earlier you are pre-approved, the more flexibility you will have in finding the perfect home without rushing,” he continues.

How to Get a Mortgage Pre-Approval

The process of pre-approval is relatively straightforward, but several steps are involved. Here’s what you should count on doing, in order.

1. Get Your Finances in Order

The first and likely most important step recommended in this process is to carefully review your financial situation. That means going over your budget with a fine-tooth comb and making sure you can afford the costs of owning a home – including monthly mortgage payments, regular maintenance and upkeep expenses, homeowners insurance, and property taxes.

This is also a good time to check your three free credit reports (from TransUnion, Equifax, and Experian) and review each carefully for accuracy. If you spot any errors or inaccuracies, dispute them and work to have them resolved with each of the three big credit bureaus.

Additionally, it’s smart to get your credit score at this stage. There are several ways to check your three-digit FICO credit score, often for free. Many websites, like Credit Karma and Credit Sesame, offer access to your credit score and other financial insights, often using data from one or more major credit bureaus. Some banks and credit unions provide credit score tracking as part of their online services. Additionally, many credit card issuers allow you to view your credit score at no cost, even if you're not actively using them.

The experts recommend aiming for a credit score of at least 620; a higher score improves your chances of getting pre-approval as well as full approval and should yield better loan offers with lower interest rates. To improve your credit score, pay your bills punctually, as payment history accounts for 35% of your FICO score.

Reducing debt is also important since lowering your credit utilization ratio—how much credit you use compared to your limit—can boost your score quickly. You might also consider requesting a credit limit increase on existing cards, which can improve your credit utilization. Other helpful steps include diversifying your types of credit, limiting new credit applications, and keeping your oldest credit accounts open.

To better your loan pre-approval odds, it’s also ideal to check and improve your debt-to-income (DTI) ratio. This ratio is a simple way for lenders to gauge how much of your income goes toward paying debts, including your potential new mortgage, helping them decide if you can take on more debt. To calculate it:

• Add up all your monthly debt payments (e.g., loans, credit card bills, and other debts), including your estimated new mortgage payment.

• Divide that total by your gross monthly income (before taxes)

• Multiply by 100 to get the percentage

Aim for a DTI of 36% or less. Some lenders may accept DTIs up to 43%, especially if you have excellent credit or other financial strengths.

2. Gather Documentation

You’ll need to collect important paperwork that helps lenders verify your financial stability, like:

• Recent pay stubs

• W-2 forms

• Tax returns from at least the last two years

• Bank statements from the last two months

• Investment account statements

• Proof of any other assets

Also, you must gather your Social Security card, driver’s license, and other forms of personal identification.

Lastly, if you’re currently renting or have rented in the past, you may need to show proof of on-time rent payments and provide the names and contact information of your previous landlords to demonstrate your reliability as a tenant and financial responsibility.

Mortgage Gift Letters

If you have received or plan to receive money from a loved one for a down payment, you may need a gift letter to show that the funds are a gift, not a loan, as a loan increases your debt-to-income ratio and complicates mortgage repayment. Different loans have specific rules about who can provide gift money; for instance, conventional loans typically accept gifts only from family members.

A gift letter should include:

• The recipient's and donor’s names and contact information

• The gift amount and date

• How the money will be used

• Confirmation that the gift doesn’t need to be repaid

• Signatures from both parties

3. Contact Lenders

Shopping around among different lenders is a smart idea if you want to find the best loan deals with preferred interest rates and terms. The pros agree that lenders can vary significantly in what they offer, so garnering multiple quotes is crucial. It’s worth contacting traditional banks, mortgage brokers, and credit unions.

4. Apply for Pre-Approval

After you’ve narrowed down your choices and chosen a lender, it’s time to apply for pre-approval. Depending on the lender, this can usually be done online or in person.

“Pre-approval decisions usually take one to three business days,” says Abedes. Although, in some cases, it can be longer – depending on the lender and how quickly they can verify your financials.

Keep in mind the lender will perform a credit check at this stage. This hard credit inquiry can slightly lower your credit score temporarily.

5. Start Shopping for Homes

Once approved, you will receive a pre-approval letter detailing how much the lender is willing to lend. Again, this letter is usually valid for two to three months.

“After receiving your pre-approval letter, you can start shopping for homes within the pre-approved price range,” says Holman.

If you haven’t already partnered with an experienced real estate agent/broker/realtor, now’s the time to find someone you can trust – an expert who can help you more easily find a home that matches your budget and criteria.

“When you make an offer on a home, submit the pre-approval letter to the seller as part of your offer package. This shows that you are financially ready to proceed, giving your offer more credibility,” Holman continues.

Moving from Pre-Approval to Full Approval

Okay, let’s assume you get pre-approved. What happens between this point and full approval?

Can your mortgage still be denied?

“Pre-approval is not a guarantee, and full loan approval is still needed once an offer is accepted,” Norman notes.

Holman warns that, even after receiving pre-approval, you can be denied a mortgage loan.

“This can happen if there are significant changes to your financial situation before the loan is fully approved, such as a job loss, new debt, or a significant drop in your credit score. Additionally, issues could arise during the appraisal process or with the property’s condition, which might prevent the lender from moving forward,” he says.

It’s smart to play it safe during this waiting period. Avoid making large purchases, applying for new credit cards, or taking on additional loans—any of these actions can affect your credit score and financial standing, potentially complicating or even jeopardizing your loan approval.

Pre-Approval: Your Key to a Confident Homebuying Journey

Even though getting pre-approval is not a surefire sign that you’ve got a mortgage loan locked up, and despite the steps needed to complete this process, it’s worth it. Sellers today seek more assurance that the buyer will close as expected.

Remember that even if you are not granted pre-approval, if you begin this process early enough, you should have plenty of time to improve your financial status and credit so you can pursue pre-approval again and increase your likelihood of winning a home bid and getting full approval on a mortgage loan.

If in doubt about loan pre-approval, talk with an experienced loan professional or banker who can guide you through the requirements and what to expect.