It can be hard to shop for a home without knowing how much you can afford. Mortgage pre-approval lets you shop smarter and make stronger offers. Let’s look at what it means to get pre-approved and how to get started.

What Is A Mortgage Pre-approval?

Pre-approval is the process of determining how much money you can borrow to buy a home. To pre-approve you, lenders look at your income, assets and credit score and determine what loans you could be approved for, how much you can borrow and what your interest rate might be.

 

Pre-approval Vs. Approval

A pre-approval is helpful when you’re shopping for a home, but you’ll need to get a full approval once you find your home, and simply getting a pre-approval doesn't guarantee you’ll get approved. For your lender, this process includes making sure the property details check out.

Here are a few property details your lender will need to approve:

  • The appraisal value: Your lender will order an appraisal of the home to make sure you’re not paying more for the home than it’s actually worth. An appraisal that comes back lower than the purchase price could pose problems for your loan.
  • The title: Your lender will work with a title company to confirm who owns the property and make sure there are no claims or liens against it.
  • The home’s condition: Some loans require that the property meets certain standards before the loan can close. For instance, if you’re purchasing the home with an FHA loan, things like cracked windows, missing handrails or a roof in poor condition could keep the loan from closing.

How To Get Pre-approved For A Mortgage

Before you’re pre-approved for a home loan, work with your lender to verify your financial information and obtain a loan estimate. Let’s walk through each of the steps and review the parts of the process you’ll be responsible for.

Collect Your Documentation

The pre-approval process is essentially a mortgage application. This means your lender or loan officer will want to take a comprehensive look at your finances. You should be prepared to provide information on the following:

  • Proof of income
  • Employment verification
  • Proof of assets
  • Credit history
  • Identification
  • Debt-to-income ratio (DTI)

Before starting the pre-approval process, you'll want the necessary documentation to ensure the process goes smoothly. Here are a few items you should have on your mortgage pre-approval checklist:

  • W-2 statements
  • Pay stubs
  • Bank statements
  • License
  • Social Security number

Once you've submitted all your information to the lender, you can expect to receive your loan estimate within 3 business days, though this may be much shorter if you use an online mortgage lender. The loan estimate will let you know whether you've been pre-approved and for how much.

Know When To Get Pre-approved

Pre-approval isn't just for your lender. Knowing how much mortgage you can expect to take out is also highly beneficial to you as a buyer, and it can help you narrow down and focus on your best options.

That means the best time to get pre-approved is at the start of your home buying journey. If you know you're in the market for a new home, apply for pre-approval now to get an early picture of your mortgage options and show agents you're a serious buyer.

Get Your Credit Score Checked

Pre-approval usually requires a hard inquiry into your credit. While this may cause your credit score to drop slightly, it won't hurt your credit in a significant way. Subsequent inquiries from other mortgage lenders within the same time period (usually about 45 days) won't affect your score at all.

Receive Your Mortgage Pre-approval Letter

When you get pre-approved, you usually get a pre-approval letter. There are a few reasons the pre-approval letter is important. First, real estate agents typically want to see your pre-approval letter before they show you houses. This ensures they don’t waste time showing you homes outside your budget.

Second, the pre-approval letter is something you can share with the home’s seller when you make an offer. It shows you won’t have problems getting financed for the amount you’re offering.

Understand How Long Pre-approval Lasts

Pre-approval doesn't last forever. Check your expiration date and keep it in mind as you look at homes. Though it varies from lender to lender, pre-approval is typically valid for 60 – 90 days. If you haven't settled on a house, you can request a renewal by giving your lender your most up-to-date financial and credit information.

 

Why Should I Get Pre-approved?

If a pre-approval doesn’t get you a loan right away, why get one? Pre-approvals have several benefits:

  • It’s easier to shop: Many real estate agents require you to get pre-approved before you shop for a home. Pre-approvals make the house hunting process easier for you and your real estate agent.
  • It makes your offer stronger: If you’re shopping in a competitive housing market, a pre-approval can be crucial to getting your offer accepted. Sellers aren’t just looking for the highest offer. They’re also looking for offers that aren’t likely to fall through. A pre-approval tells buyers you can get financed for the amount you’ve offered.
  • It gives you time to sort out issues: There are reasons both buyers and sellers may need to get to closing fast. Getting pre-approved means you’re getting the bulk of the mortgage process done upfront. That way, once you’ve had an offer accepted, you can just focus on getting ready for your move.

The Bottom Line

A pre-approval is a great first step toward buying a home. Once your financial information is verified, you'll have a clear idea of how much home you can afford. Getting pre-approved before you start your house hunt benefits everyone involved.