How to Get a Mortgage Preapproval

How to Get a Mortgage Preapproval

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Getting preapproved for a mortgage is different from applying for other types of credit. A home mortgage is typically the largest loan you’ll take out in your lifetime, and lenders look at much more than just your credit score for a mortgage preapproval.

If you’re getting serious about buying a home, we’ll outline some simple steps to take to get a preapproval letter.

The basics of mortgage preapproval

When a lender says you’re preapproved, it means they’re willing to lend you money based on the information you’ve provided. A lender typically checks your credit and reviews your income and assets to provide a home loan preapproval. However, the loan isn’t fully approved until every aspect of your loan application is verified by an underwriter.

There are two key reasons to get a mortgage preapproval before looking at homes:

  1. To know how much you can afford. Lenders set limits on how much they’re willing to lend based on your income and total debt. Knowing those limits before you start your home search will keep you within a set budget.
  2. To let a seller know you’re a solid buyer. Most sellers won’t consider an offer from a homebuyer who isn’t preapproved, and some real estate agents recommend getting a mortgage preapproval before they show you homes.

Digital technology allows some lenders to quickly check your credit, income and assets to issue a preapproval within a day or a few days, at most. But if you have some credit challenges or complicated income, for example, it may take longer to get preapproved.

Documents needed for mortgage preapproval

In general, lenders require certain documentation to consider you for a mortgage preapproval. These include:

Documentation Needed for a Mortgage Preapproval

  • Last 30 days worth of pay stubs
  • W-2s and federal tax returns for last two years
  • Bank statements for last 60 days
  • Explanation for any large cash deposits
  • Employment history from the last two years
  • Credit report (lender will pull)
  • Two-year address history

Lenders may request additional documents, depending on the type of mortgage you use. For example, loans guaranteed by the U.S. Department of Veterans Affairs (VA) require proof of military service, known as a certificate of eligibility, for a preapproval.

How to get preapproved for a mortgage

Here are common steps for getting preapproved for a mortgage.

  1. Shop around for your best rates. The lower your interest rate, the higher loan amount you may be preapproved for. Try a rate comparison site, or check with online banks, traditional lenders or local credit unions to shop. Or consider working with a mortgage broker who can do the legwork for you.
  2. Apply for a mortgage preapproval. Depending on the lender, you can apply online, by phone or through a smartphone app. Ensure the information you provide on your application is accurate and up to date.
  3. Find out what your credit scores are. The lender will pull a mortgage credit report to make sure your credit scores meet the minimum requirements. And don’t worry about the inquiries on your credit report — as long as you apply for mortgages within a 45-day period, your scores shouldn’t be impacted, according to the Consumer Financial Protection Bureau (CFPB).
  4. Review your mortgage preapproval letter. Once the lender reviews your application, you’ll get a preapproval letter detailing the preapproved loan amount, loan program, interest rate, loan term and estimated monthly mortgage payment. Hang on to a copy of the preapproval letter; your real estate agent will need it to include with purchase offers.

Your mortgage rate isn’t typically locked until you find a home. Stay in touch with your loan officer if rates are rising to make sure you still qualify. On the other hand, if rates are dropping, you may be able to borrow more.

Is prequalification different from preapproval?

You may hear the term prequalification during the homebuying process. However, a prequalification is not the same as a preapproval. A mortgage prequalification is often a casual conversation about whether you qualify based on verbal credit, income and asset estimates. A mortgage preapproval digs into your finances in more detail.

Let’s see the basic differences between a prequalification versus a preapproval.

Income: Your best guess of annual earningsIncome: An average based on pay stubs and W-2s
Credit: The last credit score you remember or an online credit scoreCredit: Credit score from a mortgage credit report
Assets: Estimated asset balancesAssets: Last 60 days of activity reflected on bank statements and cash accounts

How long does a mortgage preapproval last?

A mortgage preapproval is good for 30 to 60 days, according to the CFPB. However, after a credit report expires, you may have to resubmit your entire loan application. A preapproval can be extended by resubmitting the loan documents listed below.

Income docsMost recent available pay stub
Bank statementsMost recent two months’ worth
Credit reportExpires after 90 days

What if I’m denied a preapproval?

Find out why you were turned down, and ask your loan officer if there are any other loan programs you might qualify for. Your loan officer can help identify areas of your credit or financial profile that need immediate attention.

Here are some tips to increase your chances of getting preapproved in the future:

  • Improve your credit score. If your credit scores are low, try paying down credit card balances to no more than 30% of your available credit. And don’t open new credit lines or close existing accounts.
  • Pay down some debt. If you were denied because you had too much debt, make extra payments to reduce it more quickly. Consider consolidating or refinancing high-interest loans.
  • Save more money. Having an extra two or three months' worth of your mortgage in the bank might boost your chances of preapproval.

Denny Ceizyk is a 25-year veteran of the mortgage industry. He has worked in all facets of home loans starting in loan processing and ultimately owning and operating a mortgage brokerage company for 18 years. Denny has written and presented to government housing, local media and national media about mortgage financial literacy. He graduated from the University of Arizona with a degree in Media Arts and Business, and recently relocated to New York City where he lives with his wife and daughter.

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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