How to Get Mortgage Preapproval: A Step-by-Step Guide

Written by Kim PinnelliReviewed by Nathan Brown, CFP®Updated: 19th Apr 2022
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If you try to buy a house without mortgage preapproval in today’s housing market, you’ll likely end up empty-handed. Why let that happen when you can get preapproved rather easily?

Here are the simple steps to get preapproved and why you should consider it.

What Is Mortgage Preapproval?

Before you buy a house, it’s a good idea to get preapproved. When you have mortgage preapproval, it means the lender evaluated your personal qualifying factors and determined you can afford the loan.

But, a preapproval doesn’t mean you’re ready to close on the loan. It simply means you are qualified to borrow the money based on the documents you’ve provided up to that point.

How Does Mortgage Preapproval Work?

To get a mortgage preapproval, you must apply for a mortgage. You’ll complete the same application no matter which lender you use – it’s a required application called the 1003.

You’ll disclose your personal identifying information, income, assets, and liabilities on the application. Along with the application, you’ll provide the lender with proof of your qualifying factors, such as your income and assets.

The lender will compare your income, assets, and credit score to the requirements for the loan. If you meet the requirements, the lender will write a preapproval letter for the chosen loan amount at the current rate. The letter will also specify the loan program and term they pre-approved you for.

A preapproval isn’t a clear to close. You can’t run out and buy a home, but it’s the first step.

Why Is Mortgage Preapproval Important? Is It Necessary?

Mortgage preapproval can help you buy the house of your dreams. Here’s why.

Sellers look for preapproved buyers. They don’t want to take a chance on a buyer that can’t afford the home.

Anyone can walk through the home and say they want to buy it, but that letter from the bank makes all the difference.

The preapproval letter tells sellers you can buy the home and qualify for financing based on the conditions they wrote in the letter.

Can you buy a home without a preapproval letter?

Sure, but it’s not recommended.

If you’re up against any other buyers, the seller will likely accept the offer from the buyer with the preapproval letter versus the one without one.

How to Get a Mortgage Preapproval (Step-by-Step)

The good news is that it’s easy to get a mortgage preapproval. Here are the steps.

#1. Start Budgeting for a Down Payment

You’ll need some money down on your home. Conventional loans require 3% down and FHA 3.5%. If you are a veteran, you may get by with no down payment, but you must still cover closing costs.

The earlier you save for a down payment, the better. Figure you’ll need at least $3,000 for every $100,000 in sales price plus closing costs of 2% – 5% of the loan amount.

#2. Check Your Credit Score

Your credit score is the first thing lenders look at when applying for a mortgage. Think of it as their first impression of you.

A good credit score gives them a reason to keep looking at your file. A bad credit score could be a reason for them to decline your application.

You don’t need perfect credit, but the higher your credit score, the better. Pull your credit report and see if there’s any negative information reporting. Look for:

  • Late payments – Any payments you makeover 30 days late hurt your credit score the most. Bring all payments current as soon as possible to help your credit score increase.
  • Overextended credit – If you carry a credit card balance, keep it at less than 30% of your credit line for the best effect on your credit report.
  • Excessive revolving debt – Try to carry a balance of revolving debt (credit cards) and installment debt, but not too much of either type.
  • Collections or other public records – Take care of any collections or public records, satisfying the amount due and getting the negative mark taken off your credit report.

>> More: What Credit Score Is Needed to Buy a Home? 

#3. Calculate Your Debt-to-Income Ratio

Your debt-to-income ratio is the next largest factor in your preapproval. Ideally, it would help if you didn’t have over 43% of your gross monthly income (income before taxes) committed.

This includes all current monthly payments (credit cards, car loans, student loans, etc.) and your new mortgage payment.

The lower your DTI is, the higher your chances of approval. The more money you have committed each month, the higher your risk of default becomes.

#4. Control Your Debt & Limit Spending

Avoid using your credit cards in the months leading up to your mortgage application. Think of it as freezing your credit.

You don’t want your credit score or debt level to change unless your credit score increases and your debt decreases. Spending aggressively during the months before your loan application could cause your score to fall and your debt ratio to increase, risking your approval.

#5. Gather Necessary Preapproval Documents

Once you think you’re ready to apply for a mortgage, you’ll need to gather these important documents to prove you can afford the loan:

  • Paystubs from the last 30 days
  • W-2s from the last two years
  • Tax returns from the last two years if you’re self-employed
  • Asset statements for the last two months
  • Proof of employment with contact information

#6. Compare Multiple Lenders

Don’t take the first mortgage offer that you receive. Instead, compare your offers from multiple mortgage lenders. It doesn’t hurt your credit if you shop around as long as you do it within a short period – typically three weeks or so.

When you shop around, apply for the same type of mortgage with each lender and see what they offer. You may find that each lender charges a different interest rate, more or less closing costs, or has different terms.

Don’t focus on the interest rate alone. Instead, look at the big picture. What will the loan cost you over its term? What are the terms? How much are the closing costs?

These factors should help you determine which loan is right for you.

>> More: Compare the Best Online Mortgage Lenders

#7. Submit Application

Once you’ve chosen your lender, submit your application with all supporting documentation. It may take a couple of days, but you should get your preapproval quickly. With the preapproval letter, you can start looking at homes and even bidding on the home you choose.

When Should I Get Preapproved for a Mortgage?

A mortgage preapproval lasts for 60 – 90 days before you must renew it. When you’re ready to look at homes, apply for mortgage preapproval.

If you just want an idea of how much you can afford or what lenders may offer you, ask for a pre-qualification. This isn’t a preapproval, and sellers won’t accept it, but it’s a nice estimate of what you might be able to afford.

>> More: Differences Between Mortgage Preapproval and Pre-Qualification 

What Is Included in a Mortgage Preapproval Letter?

Each lender includes different information in the preapproval letter, but on average, expect:

  • The price of the home you intend to purchase
  • The amount of loan you’re approved for
  • The approved down payment amount
  • The loan terms including the interest rate (this could change)
  • Any conditions you must clear before receiving final approval

Do Mortgage Preapprovals Affect Your Credit Score?

Since lenders pull your credit, mortgage preapprovals affect your credit score. But there’s a trick.

If you shop around (you should), the credit bureaus treat it as one credit pull if you do so in a reasonable time. Usually, this means 3 – 4 weeks. So, don’t apply for a mortgage one month and wait another month or so for another. Get quotes somewhat close to one another for the least amount of damage to your credit score.

A credit ‘ding’ usually costs you about five mortgage points, which doesn’t affect most people too much.

Is Mortgage Pre-Qualification the Same as Mortgage Preapproval?

Mortgage pre-qualification and preapproval are similar but not the same.

A pr-qualification is an estimate of what you can afford. Lenders don’t do any underwriting on your file. You verbally provide your income, assets, and credit score qualifications, and the lender decides what (if any) program you’d fit into.

A pre-qualification is good when you’re deciding if you’re ready to buy a home. It tells you if you’re in a good position to do so or if you need to change up some of your qualifying factors before you apply.

A preapproval is a qualification of your personal qualifying factors. Lenders don’t write a preapproval letter until you provide proof of your income, assets, and credit score, and they compare it to the loan’s guidelines.

What Documents Do You Need for Mortgage Preapproval?

To get preapproved for a mortgage, you must prove that you make enough money to afford the payment, have adequate assets for the down payment and closing costs, and have a solid credit history.

To do this, you must provide your paystubs for the last month, asset statements for the last two months, and W-2s or tax returns for the last two years.

How Long Does It Take to Get Preapproved for a Mortgage?

Lenders can preapprove you somewhat quickly. Each lender has a different turnaround time, but some lenders offer preapproval in a matter of a couple of hours, while some take a few days.

How Long Does Mortgage Preapproval Last for?

A mortgage preapproval lasts for 60 to 90 days and varies by lender. On your preapproval letter, it will show the expiration date.

If you don’t find a home and move on with the mortgage underwriting process before it expires, you can get it renewed by providing updated paystubs and asset statements. The lender will also pull your credit again.

What to Do if You Don’t Get Preapproved for a Mortgage

If you don’t get preapproved for a mortgage, don’t get discouraged. Use it as an opportunity to fix what’s wrong and try again.

A declined preapproval doesn’t mean you’ll never get approved. It just means try again when you’ve improved your qualifying factors.

Bottom Line: How to Get a Mortgage Preapproval

A mortgage preapproval is the best way to win the bid on your dream home. Sellers want preapproved buyers because they are more of a ‘sure thing’ than a buyer that hasn’t tried getting approved yet.

The process is simple and, in some cases, may only take a few hours. Get preapproved before shopping for a home, and you’ll land your dream home much faster!

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Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.