• Mortgage pre-approval is when a lender reviews your financial and credit profile to determine if you are likely to qualify for a home loan and how much you may be able to borrow. 
  • In addition to informing your homebuying budget, pre-approval can strengthen your purchase offers by assuring sellers that you will likely qualify for the funding needed to complete the purchase.
  • To get pre-approved for a mortgage, you’ll need to submit an application, along with proof of identity, income, assets, and debts, to a lender so they can assess your financial profile. 

Many first-time homebuyers are surprised to learn that mortgage pre-approval is one of the first steps in the home-buying process. Before looking at property listings online, you should discuss your finances with a mortgage lender to get pre-approved for a home loan. 

The pre-approval process is not complicated, but many buyers have questions about it simply because it may be a new experience, especially if you’ve not bought a house before.

This article will explain the mortgage pre-approval process, including:

  • What pre-approval is and how it works
  • Why pre-approval is so important when buying a home
  • The difference between prequalification and preapproval
  • How to get pre-approved   

What Is Mortgage Pre-Approval? 

Mortgage pre-approval is the formal process of having a lender review a borrower’s credit profile and finances to conditionally approve them for a specific loan amount.[1]

The main purpose of mortgage pre-approval is to confirm that you qualify for a home loan and to strengthen your position when you’re ready to make an offer. Plus, since the pre-approval tells you how much you can borrow, you can start shopping in the right price range from the beginning. This can save you from falling in love with a home, only to find out that you don’t qualify for a large enough loan to actually buy it.

Mortgage pre-approval also assures your real estate agent and home sellers that you can qualify for the loan needed to close the deal. 

Many real estate agents insist that you get pre-approved before they agree to represent you. This is because agents usually don’t earn their fee until the purchase is complete.[2] They do not want to invest their time in showing you homes unless they can confirm that you are financially able to buy the homes. 

Being pre-approved can also increase your chances of getting an offer on a home accepted by the seller. Sellers may be hesitant to accept offers from unapproved buyers because once the property goes under contract, many buyers assume it is no longer available, and the traffic will slow. Then, if the deal falls through because the buyer couldn’t secure funding, the seller may have to start looking for a new buyer all over again. Even worse for the seller, some buyers may assume the deal fell through because of a problem with the house, making it even more difficult for them to find a buyer. This is why sellers strongly prefer to work with pre-approved buyers.

How Does Mortgage Pre-Approval Work?

The mortgage pre-approval process begins when you, as the homebuyer, submit an application to a lender along with documentation of your current income, assets, and debts. The application also authorizes the lender to access your credit history, which shows how you manage debt (whether you borrow responsibly, pay your bills on time, etc.). This typically involves a "hard pull" of your credit report, which can cause a slight temporary decline in your credit score, but won't significantly impact your score. 

The lender reviews the application, assessing the following factors to determine if you qualify for a mortgage loan:

  • Your credit score: The numerical score of how responsibly you manage credit. 
  • Your income and employment history: How long you’ve been in your current position, and how much money you make.
  • Your debt-to-income ratio: The amount of your monthly debt repayment obligations, as a percentage of your gross income.
  • Your assets and savings: Cash and other investments that can be accessed to cover the down payment and closing costs.
  • The type of loan you’re applying for: Different mortgage loan types have different financial requirements.    

If the lender determines that you meet the preapproval qualification requirements, they will issue a pre-approval letter, stating that you are pre-approved and listing the maximum loan amount you are qualified to receive. 

What Is the Difference Between Prequalification and Pre-Approval?

While pre-approval involves a formal review of your financial documentation and credit report, prequalification is an informal review of your self-reported financial position to determine whether you might qualify for a home loan if your information can all be verified later.

Prequalification can be completed quickly, but it does not carry as much weight as pre-approval. Real estate agents and home sellers are far less likely to accept a prequalification as proof that you can secure a home loan. 

If you are serious about buying a home, getting pre-approved is well worth the effort. 

What Is Preliminary Pre-Approval?

Preliminary pre-approval is a convenient stepping stone some lenders offer to full pre-approval. Preliminary pre-approval is a streamlined version of the process that provides a faster answer to your application by requiring a less detailed review of your financial documentation.

With preliminary pre-approval, you can submit your financial information and authorize a soft pull of your credit report to give the lender an overview of your score. Unlike the hard pull of a traditional pre-approval (also called an inquiry), a soft pull does not impact your credit score.[3]

This is a valuable solution for homebuyers who need pre-approval quickly so they can start working with an agent or make an offer on a home right away.

How To Get Pre-Approved for a Mortgage in 3 Steps

To get pre-approved for a mortgage, follow this simple three-step plan: 

Step 1: Prepare Your Financial Documents

Lenders typically need the following documents to issue a pre-approval:[4]

  • Proof of income: Pay stubs for the last 30 days. If you are self-employed, you can submit your most recent profit and loss statements.  
  • Proof of income history: W-2s from the last two years, along with documentation of any other income sources. Self-employed applicants may also need to show 1099s and tax returns from the last two years.
  • Proof of assets: The two most recent statements from all bank and investment accounts. 
  • Debt information: A list of active debts, including credit cards, student loans, auto loans, and any other outstanding debts (some of this information may be accessible to the lender through the credit report). 
  • Proof of identity: Your social security number and a valid, government-issued ID (such as a passport or driver’s license).
  • Documentation of the source of your down payment: If your down payment is coming from your documented assets, no additional information may be needed. However, if you’ll be using gifted funds for your down payment, you may need a statement from the giver confirming the gift amount.
  • Documentation of any name change: If you recently changed your name and your old name is listed on any of your documents, you may need to provide documentation of the reason for the name change, such as a marriage certificate, divorce decree, or court order. 

Step 2: Choose Your Lender Carefully

Look for a reputable, transparent lender with a strong track record in the mortgage industry. You can explore online reviews to see what other borrowers have experienced with different lenders. One sign of a credible, experienced lender is that they offer educational resources to help you make informed decisions. You can also review mortgage interest rates to ensure your lender offers competitive rates.

You might also consult the Nationwide Mortgage Licensing System (Nationwide Mortgage Licensing System and Registry) and Registry to confirm that your chosen lender is authorized to conduct business in your state.  

Step 3: Submit Your Pre-Approval Application

Many lenders offer convenient online application portals where you can submit your application and upload your supporting documentation through their website. If you are uncomfortable applying online for any reason, you might visit a branch to complete the application in person or call a mortgage loan officer (MLO) to apply over the phone. 

The Benefits of Mortgage Pre-Approval

Mortgage pre-approval offers multiple benefits for homebuyers, including:

  • Confirming qualification. Pre-approval offers some assurance that you will likely qualify for a home loan if your financial situation remains stable. 
  • Learning your borrowing limit. Knowing how much you can borrow allows you to budget for your home purchase more confidently. 
  • Strengthening your offer. Your pre-approval assures home sellers that you can qualify for the funding needed to complete the purchase, which may incentivize them to accept your offer. 
  • Accelerating the homebuying process. Your lender has your pre-approval and supporting documentation on file, giving you a head start when you get a home under contract and are ready to apply for your new mortgage. 

Additional Important Considerations of Pre-Approval

Before applying for pre-approval, it is important to consider a few additional items.

The Impact of Pre-Approval on Your Credit Score

The pre-approval process typically requires a hard pull of your credit, which can temporarily lower your credit score by several points. However, there is a 45-day window during which all inquiries from mortgage lenders are lumped into one inquiry on your credit report.[3] So you will not hurt your credit by having multiple mortgage-related credit inquiries during the 45-day window.

Limitations of the Pre-Approval Letter

Pre-approval letters come with a few limitations:

  • They’re not loan guarantees. Pre-approval means you’re likely to qualify, but final approval depends on a full underwriting process, including a review of the property you’re buying.
  • They have an expiration date. Most pre-approval letters are valid for 60 to 90 days. After that, you'll need to update your financials and possibly get another credit check.
  • If your financial situation changes, the letter could be revoked. If your income, debt, employment, or credit score changes, you may need to apply for a new pre-approval based on your new financial profile.
  • They don't factor in the property. Final loan approval includes an assessment of the property you’re buying to make sure it meets loan program requirements (like appraised value, condition, and title). Since the pre-approval is typically issued before the home is chosen, this cannot be accounted for in the pre-approval.  

The Process Relies on Accuracy and Communication

For a smooth pre-approval process, applicants must present all relevant documentation to the lender. Lenders may have additional questions or require additional documentation to complete the process, so applicants must also be accessible and responsive to follow-up communication from the lender.  

Start the Mortgage Pre-Approval Process Today

Pre-approval is the first step on your path to homeownership. Getting pre-approved can help you confidently shop in the right price range and make a stronger offer when you find the right home. If you’re planning to buy a home in the near future, get pre-approved for your new mortgage today.