How To Get A Mortgage Preapproval

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

What Is A Mortgage Preapproval?

Mortgage preapproval is the process of determining how much money you can borrow to buy a home. During the mortgage preapproval process, lenders like Rocket Mortgage^® look at your income, assets and credit score. This information determines what loans you could be approved for, how much you can borrow and what your interest rate might be.

Home Loan Preapproval Vs. Prequalification

Preapproval and prequalification are both ways of understanding the loan amount you’ll be able to get approved for. There are some slight differences between these two processes, though some lenders use these terms interchangeably.

A mortgage prequalification is like a preapproval, but it may not be as accurate. With a prequalification, you won’t have to provide as much financial information, and your lender won’t pull your credit.

Without your credit report, your lender can only give you rough estimates. This means the approval amount, loan program and interest rate might change as the lender gets more information. Because a prequalification is an initial review of your finances, you usually don’t need to supply documentation (like bank statements and pay stubs) during this stage.

Preapprovals are more in-depth than prequalifications. When you get preapproved, you may be required to provide information or documents. These might include bank statements and pay stubs. A preapproval will also require a hard credit check so your lender can see your credit score and other debt.

Typically, you can apply for both a mortgage preapproval and a mortgage prequalification online.

Home Loan Preapproval Vs. Approval

A preapproval is helpful when you’re shopping for a home. But you’ll need to get a full approval once you find your home. Simply getting a preapproval before you start looking at properties doesn't guarantee you’ll get approved. Your lender, will need to review property details for a home loan approval.

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

• The appraisal value: Your lender will order a home appraisal 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 like Federal Housing Administration (FHA) loans require that the property meets certain standards before the loan can close. Issues like cracked windows, missing handrails or a roof in poor condition could keep an FHA loan from closing.

How To Get Preapproved For A Mortgage

Before you can get a home loan preapproval, you need to verify your financial information and obtain a loan estimate. Let’s walk through each step and review the parts of the mortgage preapproval process you’ll be responsible for.

1. Collect Your Documentation

The mortgage preapproval process is essentially a mortgage application. This means your lender or loan officer will want to take a comprehensive look at your finances and debt-to-income ratio (DTI). You should be prepared to provide information on the following:

• Proof of income
• Employment history and possible verification
• Proof of assets
• Credit history
• Identification

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

• Tax returns
• W-2 statements`
• Pay stubs
• Bank statements
• Driver’s license
• Social Security number

Once you’ve submitted all your information to the lender, expect to receive your loan estimate within 3 business days. Although this may be much shorter if you use an online mortgage lender. The Loan Estimate gives details on the potential cost of the loan and is necessary for preapproval.

2. Know When To Get Preapproved For A Mortgage

Preapproval isn’t just for your lender. Knowing how much mortgage you can expect to take out is also highly beneficial to you as a home buyer. It can also help you narrow down and focus on your best options.

That means the best time to get preapproved is at the start of your home buying journey. If you’re ready, apply early to see your mortgage loan options and show agents that you’re a serious buyer.

3. Get Your Credit Score Checked

Preapproval usually requires a hard inquiry into your credit. While this may cause your credit score to drop slightly, getting preapproved for a mortgage won’t hurt your credit significantly. Subsequent inquiries from other mortgage lenders typically within 30 days won’t affect your score at all.

4. Receive Your Mortgage Preapproval Letter

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

Second, the preapproval 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.

5. Understand How Long Preapproval Lasts

Preapproval 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, preapproval is typically valid for 60 – 90 days. If you haven't settled on a house, you can request a renewal. This is done by giving your lender your most up-to-date financial and credit information.