Find out what getting pre-approved for a mortgage means, if you should get pre-approved while house shopping, and how you can get pre-approved.
When you start to get serious about buying a home, a mortgage pre-approval is an important first step. Getting pre-approved for a mortgage lets you know how much money you can borrow, the range of interest rates you qualify for and the different mortgage options available to you.
According to Zillow’s Consumer Housing Trends Report 2022, 85% of sellers say that they prefer to accept an offer from a buyer that is pre-approved. In many cases, buyers agents also prefer you to have a pre-approval letter before they start showing you potential properties. By getting pre-approved, you can feel confident about making an offer on a home and be one step ahead when it comes time to finalize your mortgage approval after your offer is accepted.
What is a mortgage pre-approval?
A mortgage pre-approval is documentation that shows you’re a good candidate for receiving a home loan. To get pre-approved, you’ll complete an application and the lender will review your financial information, which includes pulling your credit. Once pre-approved, you’ll receive a pre-approval letter with an estimate of how much money you may qualify to borrow, the types of loans available to you and the interest rate you may be able to secure.
While a mortgage pre-approval is not a guarantee that you’ll receive a loan or a specific interest rate, a pre-approval letter will provide you with enough information to confidently continue your home search. Your lender will also have many of the necessary financial and personal information on-hand to be able to process your loan approval once you have a purchase contract in place.
Is pre-qualified the same as pre-approved?
No, a mortgage pre-qualification is not the same as a pre-approval. Unlike a pre-approval, getting pre-qualified doesn’t require an in-depth review of your finances or a hard credit check. When it comes to choosing between getting pre-qualified versus pre-approved, a pre-approval is going to be more comprehensive and give you a more accurate look at the types of mortgages you qualify for.
If you’re curious about buying a house, get pre-qualified first to check your buying power. Talking to a lender will give you a reasonable idea about your estimated closing costs, rates, payment, loan amount and so on. Then once you’re ready to get serious about buying a home or have already found a home you love, start the mortgage pre-approval process.
How to get pre-approved for a mortgage
The mortgage pre-approval process is essentially the start of your loan application. You’ll need to provide some key details to the lender in order for them to process your loan. If you have a co-signer, they’ll also need to provide their financial information to the lender. Below are a few steps to help get you started.
1. Gather your financial documents
One of the main requirements for mortgage pre-approval is being in good financial standing. Lenders will want to see proof of income, assets and credit history. You’ll also need to provide identification and verify your employment. Some of the most common documents that are required of each borrower include:
- W2 statements (from the last 2 years)
- Paystubs (from the last 3 to 6 months)
- Bank statements
- Driver’s license
- Social security number or individual taxpayer identification number
- Tax returns
2. Check your credit score
A good credit score is key to getting pre-approved. Each lender and loan type has a minimum credit score requirement that will apply to both you and any co-applicant. For conventional loans, lenders usually require a credit score of 620 or higher. Before applying for a pre-approval, take some time to request a free credit report to ensure there are no errors on your report that could be negatively affecting your score.
Since completing a pre-approval application does affect your credit score, getting a free check that won’t impact your credit will give you a rough idea of your current score. You can then use the estimate as a baseline for checking if you meet a lender’s mortgage qualifications.
3. Research lenders near you
Before contacting a lender to get pre-approved, you’ll want to compare rates and also interview each of the lenders you plan on working with. You can start by reading lender reviews online or asking friends and family members if they have any recommendations. Another great way to check if a lender is right for you is by talking to them directly. Ask the lender questions about themselves, the lending process and the loans they offer. Loan requirements will vary by lender, along with the interest rates they offer, origination fees, points and closing costs. Shopping around helps you find a lender that fits all your loan needs.
4. Lower your debts
During the mortgage pre-approval process, your lender will also look at your debt-to-income ratio (DTI), which compares your monthly debt obligations to your monthly income. DTI requirements can vary by lender and loan type, but generally speaking, the lower your monthly debt compared to your income, the better. You can use Zillow’s DTI calculator to get an idea of your current debt-to-income ratio.
5. Apply for a mortgage pre-approval
You’ve collected all your documents, found three or so lenders that meet your needs and are confident about your chances of getting pre-approved. Now it’s time to officially start the mortgage pre-approval process. Zillow makes it easy to start the pre-approval process. You can apply and submit all your documents online.
6. Await your pre-approval letter
Once you finish your application and meet all the necessary qualifications, you’ll get a pre-approval letter and a loan estimate. The letter will include how much money you’re pre-approved to borrow. The loan estimate will provide details about your loan, including your monthly mortgage payment, interest rate and closing costs based on your pre-approved loan amount.
Keep your pre-approval letter handy. Real estate agents often ask to see your letter before showing you houses, as it demonstrates that you’re a serious buyer. You’ll also need to include the letter with your offer to the seller when you make an offer on a house.
FAQs about mortgage pre-approval
When should I get pre-approved for a mortgage?
The general guideline is to get a mortgage pre-approval at least 90 days before you plan to buy to give you enough time to find a home and close on your loan. While you can wait to get pre-approved until you’ve found a home you’re ready to make an offer on, a pre-approval can help you during your home search — some agents even prefer it. Presenting a pre-approval letter along with your offer will also make your offer standout among the rest in a more competitive housing market.
What do I need for a pre-approval?
You’ll need to provide a variety of documents and information that demonstrate your creditworthiness to start the pre-approval process. This includes your social security number or individual taxpayer identification number
(so the lender can pull your credit reports), pay stubs, bank statements and W2s or tax returns. If you’re applying with a co-applicant, they’ll need to provide the same information.
Does getting pre-approved hurt your credit?
Because getting pre-approved requires a hard inquiry, completing the application can typically lower your credit score by a few points. The impact you see may vary depending on the total number of inquiries you’ve had over the past year. If you’ve had several inquiries, you may see a larger impact on your credit.
Hard inquiries will generally stay on your credit report for a year or two, which is why if you’re shopping around and comparing multiple lenders, you’ll want to apply to each lender within 14 to 45 days of starting the mortgage pre-approval process. Within this time period, all credit inquiries related to pre-approvals will be consolidated into a single hit to your credit score.
Remember, the benefits of a mortgage pre-approval typically outweigh the disadvantages of a temporarily lower score. A credit report is good for 180 days, so if you find a home within that time, your credit will not need to be checked again. By continuing to take steps to maintain or improve your credit score, you can reverse any negative impacts.
How long does a pre-approval take?
Most lenders can process a pre-approval in less than a day. Make sure you have all the necessary documents handy or the process may take longer.
How much can I get pre-approved for?
Your mortgage pre-approval amount will depend on your credit profile. Lenders will take into consideration your credit history, credit score, income, debt-to-income ratio and the size of your down payment.
Can I get denied a loan after pre-approval?
Yes, it’s possible to get denied a loan after receiving a pre-approval. A mortgage pre-approval doesn’t guarantee a loan, but rather lets you know if you’d qualify for a loan based on the information you provide at the time of application.
Before you receive a formal loan approval, your lender will need to verify the information you’ve provided, see the home’s appraised value, check for a clear title and ensure that the home’s condition meets the standards of the loan.
If you don’t end up getting approved, your lender will provide an explanation, alongside some guidance on what you need to do to improve your chances of being approved.
How to improve my chances of getting a loan approved?
The best way to increase your loan approval odds is to ensure your financial profile is as strong as possible. Work to establish good credit, and correct any errors you find on your credit report. Lowering your debt and trying to maintain a steady income will also help. Because your down payment amount is also a factor, make sure you have a plan in place to save for a down payment on your home purchase in order to qualify for a loan amount that fits your goals.
Why should I get pre-approved?
The most important reason to get pre-approved is to get an accurate idea of how much you’ll be allowed to borrow and what your home budget will be. A pre-approval letter also helps you show real estate agents and sellers that you’re serious about buying. In a competitive market, offers with a pre-approval letter included can stand out among the competition.