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How to get preapproved for a mortgage

Why you need a preapproval letter for buying a home

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You’ve already looked at online house listings 10 times this week. But if you want to make your dream home a reality, the first step is to get a mortgage preapproval from a lender.

Getting a mortgage preapproval tells you if you really are ready to buy a home and how much you can afford. It also makes you look like a serious buyer when you make your first offer.

Key insights

  • Knowing how much a lender is willing to let you borrow helps you determine a practical budget for your home search.
  • When you present a preapproval letter to a real estate agent or home seller, it communicates that you are a serious buyer.
  • While preapproval is a crucial step in the homebuying process, it doesn't guarantee that you will be approved for a mortgage.

What is a mortgage preapproval?

Mortgage preapproval is conditional approval from a lender for a specified home loan amount. This means that you aren’t guaranteed a home loan, but it tells sellers you have been financially vetted by a lender.

Preapproval shows a seller that a lender has looked at your finances and conditionally approved a home loan.

When you first meet with a lender for preapproval, you provide financial documentation, like pay stubs and bank statements, that helps the lender decide the terms of a potential loan. One reviewer said they were given preapproval from a lender based on the buyer’s word and credit score alone.

Once you are ready to take out a loan, the lender will need to verify your financial information to make sure nothing has changed. The property must also meet the lender’s standards. If your financial situation changes or there is an issue with the property, the loan may fall through.

Pre-qualification vs. preapproval: What’s the difference?

Although the terms are similar, pre-qualification and preapproval refer to two separate mortgage processes, and both have separate benefits.

  • Pre-qualification: The lender gives you a general idea of how much you can borrow based on your income and debt. Since it doesn’t require a credit check, you can get pre-qualified online or over the phone in minutes.
  • Preapproval: The lender gives you conditional approval for a loan based on a hard credit check and your financial documents, like pay stubs, W-2s and bank statements. With this letter, you can officially make offers on homes.

» MORE: What credit score is needed to buy a house?

Benefits of getting a preapproval letter

“Unless you plan to pay all cash for a home purchase, obtaining a preapproval letter not only provides confidence to other parties that you can get a loan but also is a strong indicator to realtors that you are serious about buying a home and [not] just a lookie-loo,” said Daniel Kerr, a senior financial advisor at Running Point Capital in El Segundo, California. “Additionally, since the lender has already reviewed your financial documents during the preapproval process, [it’s] a shorter closing process.”

Here are some other benefits to getting preapproved for a mortgage before you start house-hunting.

  • It gives you an advantage over other buyers: Getting preapproved for a mortgage gives you a leg up on other potential buyers who haven’t contacted a lender or who are only pre-qualified.
  • You can shop around for the best terms: It’s always a good idea to get quotes from at least two different lenders when you’re shopping for a mortgage. Try to get all quotes within a 30-day span to minimize the effect on your credit score.
  • You can lock in a good rate: When your lender supplies you with a preapproval letter, you may also have the option to lock in the interest rate. The rate you get can be valid for up to 60 days. Not all lenders offer this feature, and many will charge you for it.
  • You can negotiate: By getting preapproved, you know the maximum amount a lender will let you borrow. Keep in mind that just because a lender approves you for a certain dollar amount doesn’t mean you have to spend that much — and don’t forget to budget for closing costs, insurance and other fees.

» MORE: Does mortgage preapproval affect your credit score?

How do I get preapproved for a mortgage?

When you are ready to start the loan process, a preapproval letter will make the whole thing easier. Here are the steps to take to get preapproval:

Assess your finances

Take a look at your income, savings and debts to ensure you’re in a good place financially to buy a house. Calculate your debt-to-income (DTI) by adding up your monthly debt obligations and dividing it by your gross monthly income. Lenders will also do this calculation, but if you know your DTI ahead of time, you’ll be better prepared. You should also review your credit report for accuracy and know your credit score.

Research lenders

Read reviews from customers, and ask friends and family for recommendations for a mortgage lender. Try to talk with lenders on the phone before you apply to get an idea of which you’re comfortable working with.

Apply for preapproval

Lenders evaluate several factors when you apply for preapproval:

Ideal lender requirements
DTI 36% or less; some lenders might accept a higher percent
Credit score 620+ conventional loans, 500+ FHA loans
Income Typically no set amount
Employment history Two years of steady employment in the same profession

Consider applying for preapproval from two or three lenders to get the best rate. Many lenders allow you to submit information online or over the phone. Make sure you have your Social Security number handy and have thought about a down payment amount. Be prepared with hard or virtual copies of financial documents, including:

  • Tax returns from the last two years
  • Pay stubs, W-2s or other proof of income
  • Bank statements and investment account statements
  • Gift letter (if your down payment is being supplied by a person not on the loan)

Wait for preapproval

Your lender will verify the information you provide, perform a hard credit check and let you know whether you qualify for preapproval and at what amount.

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    When should you get preapproved for a mortgage?

    You should seek preapproval just before you start searching for a home. Having the preapproval letter puts you in a position to make an offer once you find a house you want to buy.

    Remember, the preapproval letter expires, usually in 60 to 90 days. If the expiration date arrives and you still want to buy a home, you’ll need to request preapproval again.

    What happens if I am denied a preapproval?

    While it can be disheartening to put your homebuying plans on pause, your lender should be able to tell you which areas of your finances need cleaning up before pursuing homeownership. You can improve your credit score or work to increase your savings in the next six months to a year and apply for a mortgage preapproval letter again.

    How long does a preapproval last?

    Preapproval letters are usually good for 60 to 90 days, after which you’ll have to go back to your lender to get it updated. The preapproval is based on your finances at the time of application, so it’s usually not a good idea to make big financial changes, like taking out a new loan or opening a new credit card, while you’re in the homebuying process.

    What factors can impact the amount you're preapproved for?

    The amount you're preapproved for is determined by various factors such as your credit score, income, employment history, existing debts and monthly expenses. Lenders use this information to assess your financial stability and determine the maximum loan amount they're willing to offer you.

    Bottom line

    If you’re serious about buying a house, then getting a mortgage preapproval letter should be your next step. Most real estate agents recommend you have a preapproval letter in hand before they start showing you houses — especially in competitive markets.

    If you’re ready to start looking at homes, begin by researching lenders and learning more about each one’s preapproval process.

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