Getting a mortgage preapproval is one of the most important first steps in your homebuying journey. This conditional commitment from a mortgage lender to extend a loan gives buyers clarity on their budget, boosts their credibility with sellers, and helps streamline the closing process.
We’ll cover what a mortgage preapproval is, why it matters, how it differs from prequalification, and the rules to follow after you receive your preapproval letter.
Buying a home? Try finding your agent through Clever Real Estate. Get a list of vetted, highly rated agents in your area and qualify for up to $500 in cash after closing. Fill out a quick form to get your no-obligation agent matches today.
What is a mortgage preapproval?
A mortgage preapproval is an official letter from a lender that states the amount they are willing to lend you for a home purchase. While it is not an absolute guarantee of funding, it is about as close as you can get to it before finding a specific property and going through the final underwriting process.
It’s a tool to show sellers that you’re serious about buying their home and qualified to do so. You’ll submit it as part of your offer on the house. It’s not always required, but in highly competitive markets it often is. It can also give your offer a serious advantage, regardless of whether it’s required or not.
Why do you need mortgage preapproval?
Securing a preapproval letter makes the house-hunting process easier and more effective. Here are some key benefits:
- Knowing your real budget: A preapproval eliminates much of the guesswork around what price of house you can afford. This helps you optimize your search and avoid spending time and energy on homes you can’t afford.
- Speeding up the closing process: If you decide to go with the same lender for preapproval and your final mortgage application (which is commonly the case), it can expedite your path to closing. The lender has already verified your income, assets, and credit score, so they don’t have to start the mortgage underwriting process from scratch.
- Proving your seriousness: A preapproval letter demonstrates to sellers that you can finance the purchase, making your offer more attractive than one from a buyer without a preapproval letter. In some cases, a real estate agent may even refuse to show a house if a buyer is not preapproved for a mortgage.
- Helping identify financial issues: The preapproval process is a deep dive into your financial health. If there are any errors on your credit report or issues with your debt-to-income (DTI) ratio, you’ll discover them early on and have an opportunity to address them before formally applying for the mortgage.
Preapproval vs. prequalification: What’s the difference?
| Prequalification | Preapproval | |
|---|---|---|
| Process | Self-reported financial overview | Verified financial documents, full credit check |
| Documentation | Minimal | Extensive: income, assets, debts, employment |
| Credit check | Soft pull | Hard credit inquiry |
| Validity | Informal estimate | Conditional commitment to lend |
| Use | Early planning, setting a budget | Submitting offers, negotiating |
A prequalification is a quick and informal estimate of the amount a lender may be able to extend based on basic financial information that you provide. Typically, a lender does a soft inquiry, with the results available instantly. It can give you an idea of your buying power, but it holds little weight when you make an offer.
A preapproval is a thorough, formal, and in-depth process. The lender will perform a hard credit inquiry and analyze your full financial picture, including income, assets, debts, and employment history. The result is a conditional commitment to lend you a specific amount of money.
How to get a mortgage preapproval
Getting preapproved for a mortgage mostly requires gathering all necessary documents and selecting a lender. Here are the main steps to expect:
Assess your financial health
Preparation is key here, so take some time before approaching a lender to examine your finances. Check your credit score and history, and review your credit reports for any errors. Address any issues before applying.
Choose a lender
You have plenty of options when looking for a mortgage lender, from national banks and credit unions to online mortgage companies. It’s wise to speak with at least two or three potential lenders to compare interest rates, terms, and fees. Read reviews, check their reputation, and choose an established lender you trust.
Prepare all your documents
Having all your paperwork organized will speed up the process. The exact list of documents required for preapproval will depend on your lender. Typically, borrowers will need to submit the following:
- Proof of identity: Government-issued photo ID and social security number.
- Proof of income: Recent pay stubs (usually, for the past four to eight weeks), W-2s, tax returns from previous years, proof of any other income, and employment information.
- Proof of assets: Recent statements from checking, savings, investment, and retirement accounts.
- Information on debts: Statements for any outstanding loans, including auto loans, credit cards, and student debts.
Submit your preapproval application
Once you choose a lender, you’ll need to fill out an application form, provide all the necessary personal information, and submit the required documents. With most lenders, you can apply for preapproval either online or in person.
Receive your preapproval letter
It can take anywhere from a few hours to a few days to receive your preapproval letter. A lender will need to verify all the provided information, so be patient if it takes longer than expected.
How long is a preapproval letter valid for?
When your application is approved, the lender will issue a preapproval letter, which is typically valid for 60 to 90 days. This letter will state the type of loan and loan amount you’re approved for, giving you 2–3 months to locate your dream property and put in your offer.
⚠️ Remember that a preapproval does not guarantee final mortgage approval. When you apply for a home loan, you’ll still have to go through full underwriting and property review by the lender.
You’re preapproved! What NOT to do next
While receiving your preapproval for a home loan is a significant milestone, don’t treat it as a done deal. The letter is a conditional commitment based on your financial situation at that particular moment (when you submitted your documents). So, any significant changes can jeopardize your final approval and closing on a property.
❌ Here’s what to avoid doing after getting preapproved:
- Don’t take out new loans: This is the number one rule to keep your credit stable. Avoid financing a new car, expensive furniture on credit, or buying-now-paying-later on any other major item. No matter the type of loan, taking on new debt will increase your DTI ratio, which impacts your overall financial health.
- Don’t change your job status: Lenders value stability, so it’s better to switch employers well before or after your home hunting process. Even if you change a position to a higher-paid one, it could create additional verification steps and delay the closing.
- Don’t open or close credit cards: Applying for a new card results in a hard inquiry, which can temporarily lower your credit score. What’s more, if you start using this card, it could result in a higher DTI ratio. Similarly, don’t close any old accounts: this can lower your average credit age and negatively impact your score.
- Don’t make large withdrawals or deposits: Any large movement of money could trigger additional scrutiny from your lender. If possible, avoid such situations altogether. And, if you receive a gift from a relative to cover your down payment, be prepared to provide a formal gift letter.
- Don’t fall behind on your bills: Even one late payment during this critical period can lower your credit score and raise a major red flag for your lender.
Mortgage preapproval FAQs
How long is a mortgage preapproval good for?
The exact answer depends on your lender, but a mortgage preapproval is typically valid for 60 to 90 days. The expiration date will be clearly stated on your preapproval letter. If it expires, you can usually get it renewed by providing some updated financial information.
How long does mortgage preapproval take?
The mortgage preapproval process can take anywhere from a few hours to several business days. The timeline depends on the lender’s efficiency, their backlog, and the complexity of your particular financial situation. Having all your documents in order and submitted accurately the first time around can significantly speed things up./
Does mortgage preapproval affect your credit score?
Yes, getting preapproved for a mortgage can temporarily affect your credit score and result in a small drop, because it requires a hard inquiry on your credit report. That said, you can still get multiple preapprovals and hard inquiries on your credit without causing multiple hits as long as you do them within a 45-day window for the same type of loan.