The home-buying market can be a competitive and confusing landscape. From entering a bidding war to getting the financing you need, securing the home of your dreams isn’t as easy as clicking your ruby slippers. While you might not be able to tap into the magic of Oz and say, “There’s no place like home” from your new living room, there are some things you can do to simplify the home buying process.
Getting pre-approved for a mortgage is one step home-buyers can take to let real estate agents and sellers know they’re serious about buying—plus it gives the buyer some guidance on what amount he or she can afford to spend on a house. In this guide, we’re covering how to get pre-approved for a mortgage as well as providing you with answers to the most commonly asked questions about mortgage pre-approval.
Use the links below to navigate to each topic.
- What Is Mortgage Pre-Approval?
- FAQs: Mortgage Pre-Approval
- Mortgage Pre-Qualification Letter vs. Pre-Approval Letter
- How Do You Get Pre-Approved for a Mortgage?
- Turbo Takeaways
What is Mortgage Pre-Approval?
A mortgage pre-approval is a letter from a lender that determines how much money they are willing to lend a home buyer to buy property. Mortgage pre-approvals also outline which loan programs and interest rates the buyer qualifies for. This amount is based on a preliminary review of the borrower’s finances, but it does not guarantee that they will be approved for the loan. Mortgage pre-approvals are often recommended because:
- They can help buyers identify whether or not they will qualify for a mortgage loan—and identify problems if they do not qualify for the loan that they need.
- Pre-approvals give home buyers a better idea of how much they can afford to help refine their real estate search.
- They let real estate agents and sellers know the home buyer is serious about buying.
- A mortgage pre-approval confirms that the potential home buyer is a good candidate for loan approval later on.
FAQs: Mortgage Pre-Approval
Does mortgage pre-approval mean you will get the mortgage?
According to the FTC, a mortgage pre-approval does not guarantee that you will get the mortgage you were pre-approved for. The pre-approval simply means that you met with a lender, they checked your financial history, and the lender ultimately determined that you are eligible for a loan.
How long does mortgage pre-approval last?
Mortgage pre-approval letters are valid for 60 days after they have been signed and issued to the loan applicant. Pre-approval letters can be extended for an additional 30 days if approved by an authorized loan underwriter. After 90 days, the pre-approval will have to be re-evaluated and updated by the lender so that they can issue another pre-approval letter.
How long does the mortgage pre-approval process take?
It depends on the lender, since each one has a different mortgage pre-approval process. If you have all of your necessary paperwork ready to go, a basic pre-approval letter could take as little time as a few minutes to a couple of days to get your results.
What do I need to get pre-approved for a mortgage?
If you’re ready to start shopping seriously for a home (and a mortgage), there are a few things you’ll need to start the process. Your lender will likely check the following when evaluating your request to get pre-approved for a mortgage.
- Proof of Income: Most lenders will take a look at your income as part of their pre-approval process. Bring along your W-2 statements from the past 2 years, as well as a few recent pay stubs, and proof to account for any additional income. Additionally, your lender will likely contact your employer to verify your employment and pay — so make sure to provide accurate contact information for your employer’s HR department or your direct supervisor.
- Credit Score: Before offering you a loan, your lender will want to check your credit score to see how you’ve managed debts in the past to ensure that you’ll be responsible with your new mortgage payments. Turbo uses TransUnion’s VantageScore to score consumer credit.
- Proof of Assets: In order to prove that you can pay your down payment and any associated costs from closing, your lender will also want to see proof of any assets you have that reflect your ability to pay these fees.
- Identification Documents: In addition to your financial documentation, your lender will need to verify your identity with a copy of your driver’s license and Social Security Number (SSN).
Each lender may require different documentation in their mortgage pre-approval process, but use these tips as a guideline to help you prepare to talk with potential lenders.
Does getting pre-approved for a mortgage hurt your credit?
If you’ve ever applied for multiple credit cards in a row, you probably saw your credit score drop a bit. Why? When a credit card company or lender requests to pull your credit history, credit reporting agencies (Experian, Equifax, and TransUnion) consider this a hard inquiry—which can cause your credit score to drop a few points if too many inquiries are requested.
When you’re shopping around for a mortgage pre-approval, you may want to compare a few different lending options in order to get the best mortgage rate possible. But do pre-approvals damage your credit when your credit is checked so many times? The Consumer Financial Protection Bureau says, no!
Consumers are able to shop around for a mortgage without hurting their credit because they’re given a 45 day window in which multiple credit inquiries are recorded as just one hard inquiry. The CFPB says this is because other creditors understand that consumers will probably be comparing their lending options—but ultimately, it’s assumed that they’re only buying one house.
Keep in mind: This 45-day window only applies to credit checks from mortgage lenders—not credit card companies. So if you want to apply for five mortgages within this time, you will only see the impact of a single credit inquiry. But, if you also decide to apply for 7 credit cards at the same time, you’ll see the impact of 8 hard credit inquiries—which might lower your credit score.
Do I have to get pre-approved for a mortgage to make an offer on a house?
Mortgage pre-approvals are not required to buy or make an offer on a house. But, many consumer resources and real estate experts recommend them because they can help define your home search and budget, speed up the buying process, and call attention to credit or finance issues so that you can work on correcting them.
Mortgage Pre-Qualification Letter vs. Pre-Approval Letter
If you’ve been searching for information on how to find a mortgage lender, you might have come across lenders using the terms “pre-qualification” and “pre-approval” interchangeably. And while they’re part of the same process, pre-qualifications and pre-approvals have some differing qualities.
- No mortgage application required
- No application fee required
- Generally, the lender will not run a credit check
- A pre-qualification decision is not based on a financial review
- You will not need to provide an estimate of your down payment
- The lender will give you an estimated loan amount — but not a specific number
- The lender will not give you your interest rate
A pre-qualification can be considered a stepping stone toward the pre-approval process. The reason a pre-qualification might carry less value than a pre-approval letter is partly due to the fact that you are the one providing financial information to your lender, rather than the lender pulling your financial history (which could be more up-to-date than the information you have).
- You’ll need to fill out a mortgage application
- You might need to pay an application fee, depending on your lender’s pre-approval process
- Your lender will conduct a credit history check
- The lender’s decision will be based on a review of your finances
- The lender will not give you an estimated loan amount, but rather, a specified loan amount
- You will be given interest rate information as a part of your pre-approval letter
Promptly providing a lender with the paperwork they need can help speed up the approval process—plus, having “secured” financing is typically more attractive to sellers that are trying to close ASAP. If you make an offer on the home and can prove that you’ve already talked to the lender and you’ve been pre-approved for a mortgage amount that suits the sale price, the seller will likely consider you a better candidate than a potential buyer who still has to meet with a lending officer.
Remember: A mortgage pre-approval does not necessarily secure or guarantee the loan.
Sellers might consider potential buyers offering to pay in cash just as appealing as a potential buyer with a pre-approval letter. While financing is not likely to fall through with a pre-approval, a seller might trust that a cash transaction is more reliable. While it can’t be guaranteed that a pre-approval letter will score you the sale, it might increase your odds of securing the home of your dreams!
Should I get a pre-qualification letter or a pre-approval?
The Consumer Financial Protection Bureau says consumers shouldn’t worry too much about which word the lender uses to refer to preliminary mortgage approvals—instead, ask your lender what kind of information will be included on the pre-approval letter.
Make sure that the pre-approval letter includes sufficient information for your real estate agent and sellers to know you’re a serious buyer. The more information you have will help you guide your housing search and plan your budget for homeownership. How do you tell if the pre-approval letter is enough? The CFPB recommends meeting with a local real estate agent to get their expert opinion.
How do You Get Pre-Approved for a Mortgage?
Step 1: Check Your Credit
Before you start applying for mortgages, it might behoove you to check your Intuit credit score to make sure you’re on the right track for mortgage approval. In a 2013 profile of mortgage borrowers, the National Survey of Mortgage Originations reported that 65% of borrowers with a VantageScore higher than 720 were approved for a mortgage, while only 4% were approved with a VantageScore lower than 620. Take this first step to evaluate where your credit stands before getting started with the mortgage application process.
If you don’t have good credit, you have a few options to consider if you still want to buy a home. The first is to fix your credit before reapplying for a mortgage. You may want to consult a housing counselor to explore how you can boost your credit. Alternatively, you can apply for a government mortgage loan that might have a lower credit score requirement.
Step 2: Evaluate Your Finances
In addition to checking your credit, you might want to take a closer look at your finances as a whole to help you decide if you’re ready to commit to homeownership. Create a budget for the next year to see if you’d be able to fit mortgage payments at your current income level. Take a look at the average monthly mortgage payments in your area to see what you might expect to pay.
Turbo Tip: Mortgage payments will vary depending on where you’re buying a house, what kind of mortgage you get, and what interest rate you’re approved for. Use your research as a baseline to help you craft your budget.
Step 3: Decide If You’re Ready to Buy
Did your credit pass the test? Does your budget allow for a monthly mortgage payment and other costs associated with homeownership? Is it a buyers’ market? These are some of the questions you should ask yourself before buying a home.
If the answer is a resounding (and enthusiastic) “YES,” it might be time to jump in! And if you’re not sure, talk with a housing counselor or financial advisor to help you make your decision.
Step 4: Gather Your Mortgage Pre-Approval Paperwork
Since you already know what you need to request a mortgage pre-approval, this step should come easy—but in the name of home buyer’s education, we’ll refresh you with a checklist!
- Photo ID
- Social Security Number (SSN)
- W-2’s from the previous 2 years
- Recent pay stubs
- Access to bank statements
- Proof of assets
- Employment history
- Proof of additional income
- Bonus: certification from homebuyer education courses
Step 5: Apply for a Mortgage Pre-Approval and Compare Options
Now that you have your paperwork together and you’ve decided that the time is now to live your house hunting dreams, you’re ready to start applying for mortgage pre-approvals. According to a study from the CFPB, participants who contacted 28% more lenders, received 23% more pre-approval letters. Applying to a variety of lenders could help expand your lending options and get you a better deal—so don’t be afraid to shop around and compare.
How much will I get pre-approved for?
It depends! The amount you’ll be pre-approved for depends on a variety of factors including your credit score and overall financial health—so it’s different for everyone! You can use the Consumer Financial Protection Bureau’s interest rate tool to explore the different interest rates you might expect depending on your credit score range, the state you live, and the loan type you’re looking for.
You can’t predict exactly how much money you’ll get pre-approved to borrow on a mortgage until you follow through with the pre-approval process, but the CFPB has some sound advice for consumers. They say that only you can determine how much you can afford when you’re looking to buy a house—the loan amount is really only a guideline and could end up being perfectly within or just outside of your budget. It’s imperative to take a good, hard look at your expenses and budget before making a commitment to a mortgage.
What happens if I don’t get pre-approved for a mortgage?
The Consumer Financial Protection Bureau says not to panic if your mortgage pre-approval application is denied. Instead, they recommend taking these actionable steps to improve your financial profile to improve your chances next time you apply.
- Ask the lender to explain why they did not approve your request for pre-approval. This can give you some insight on how you can improve your credit score or application in the future.
- If the lender pulled your credit to review your application, ask them for a copy of your credit score. They should already provide the score they used as well as information on how you can obtain your credit score—but if they did not, make sure to get this information.
- If you see errors on your credit report, take the necessary steps to dispute your credit report.
Finally, reach out to the U.S. Department of Housing and Urban Development (HUD) to find information on home buying and tips on how to improve your credit score for your mortgage application.
The big picture: If you don’t get approved immediately for a pre-approval on a mortgage, it’s not a housing death-sentence. Use this information as an opportunity to improve your financial health and get a deeper understanding on how mortgages work.
Can a mortgage get denied at closing?
Yes. Unfortunately, a mortgage pre-approval is not the symbol of a done deal for lenders or sellers. Like we mentioned before, a mortgage pre-approval is not a guarantee that you will get approved for the mortgage you initially qualified for.
Here are some possible reasons your mortgage pre-approval could fall through in closing:
- Employment Change: Your mortgage pre-approval will be based on your income at the time your application was processed. So if there have been changes to your income or employment, this could cause the lender to reconsider their offer. Try your best to keep your income and employment consistent while you’re in this stage of the home buying process.
- New Debt: Taking on additional debt could sway your debt-to-income ratio to a level that the lender might not approve when you reach the closing stage. For this reason, you might want to put off big purchases on your credit card—and wait to open any new lines of credit.
- Lack of Cash: Many lenders will require borrowers to have a certain amount of cash reserves saved to account for closing costs and initial mortgage and down payments. Check in with the lender beforehand to see if they have any requirements for this so you can avoid any potential issues at closing.
- Improper Documentation: If you followed our guide on how to get pre-approved for a mortgage (in conjunction with the lender’s requirements), you probably won’t run into this issue. But, if you reach the final stages of closing and realize you don’t have a record of your W-2s or other important information, you could ultimately be denied for the mortgage you were pre-approved for.
How can you avoid this issue? Gather all of your documentation while you’re in the process of applying and ask the lender up front about any additional requirements.
Homeownership comes with a big learning curve for most of us—from understanding how home equity loans work to taking out your first mortgage or selling your home, there’s a lot to know. Follow these tips to help guide you in your housing search and you’ll be another step closer to homeownership!