How to Get a Mortgage Preapproval

A mortgage preapproval can give you extra leverage when you are ready to buy a home. This preapproval indicates to the seller and mortgage lenders that you can get the financing you need to buy a house. A preapproval is an upgrade from getting prequalified, and it can help you stand out. This guide will reveal how to get a mortgage preapproval and why it’s important.

What Is a Mortgage Preapproval?

A mortgage preapproval is when a lender provides a letter confirming your approved financing. It offers a specific estimate of how much you can receive when you apply for a mortgage. A preapproval does not guarantee final approval, but it increases your chances and can make you stand out from other potential buyers.

Mortgage Preapproval vs. Prequalification

Preapproval and prequalification streamline financing, with preapprovals offering a significant advantage. Both processes involve using your income and assets to determine how much financing you can receive. However, borrowers self-report their income, assets, and other information when they prequalify. 

Lenders review your income, assets, and other information during a preapproval. Sellers take preapprovals more seriously than prequalifications, but it’s better to have at least one than nothing.

Mortgage Preapproval vs. Approval

Preapproval indicates the amount you can borrow for a mortgage. While you’re likely to get approved for the amount designated in your preapproval letter, some mortgage lenders may reject your application. 

Furthermore, a preapproval letter is only valid for 60-90 days. You’ll have to act quickly and get financing if you get preapproved.

The mortgage application process tests your preapproval and determines whether you will receive financing. Getting approved for a mortgage will become easier if you build your credit, reduce your debt-to-income ratio, and make a higher down payment.

How to Get Preapproved for a Mortgage

Getting preapproved for a mortgage usually takes 7-10 days. To make the process more seamless, follow these steps. 

Get Your Credit Reports and Credit Scores in Order 

Mortgage lenders will look at your credit report during the preapproval process. Building your credit and making on-time payments will allow you to borrow more money. A good credit report can result in a more favorable preapproval that increases the likelihood of landing a deal.

Gather All Required Documentation 

Lenders specify required documents during the preapproval process. You’ll typically need asset statements, employment verifications, and proof of income. To verify your income, lenders may request W-2s, pay stubs, and tax returns. You will also have to provide a government-issued photo ID. 

Calculate Your Debt-to-Income Ratio 

Lenders look at your debt-to-income ratio to determine if you can make on-time mortgage payments. This ratio expresses your debt as a percentage of your monthly income. For instance, if you earn $8,000/mo and spend $2,000/mo on debt obligations, you have a 25% debt-to-income ratio.

Some mortgage lenders will work with you if your DTI ratio is 50%. However, most lenders want to see a debt-to-income ratio below 43%. A lower debt-to-income ratio can result in more funding and a lower interest rate.

Shop Around with Multiple Lenders

Don't limit your search to one lender. You can apply for multiple preapprovals within a 14-day stretch to only end up with one hard credit check for scoring purchases. Applying for multiple preapprovals can help you compare preapproval amounts, mortgage rates, fees, and other information. 

Don't Make Major Financial Changes

Avoid significant financial changes or hard credit checks during preapproval. Even when you get preapproved, you shouldn’t make any changes like applying for a line of credit or a personal loan until you close on a mortgage. Housing is the most expensive item in most people’s budgets, and making any major changes can impact your approval or result in a higher interest rate.

Get a Preapproval Letter 

The mortgage lender will provide you with a preapproval letter that states your eligibility. You can use this letter when approaching sellers to make them feel more confident about working with you.

Understand the Preapproval Timeline 

The preapproval timeline typically spans 60-90 days. After three months, you will have to get a new preapproval letter. It’s a good idea to seek preapproval once you know which house you want to buy or are narrowing down the decisions. Preapproval isn’t something you get when you are just getting started with the home searching process.

Benefits of a Mortgage Preapproval

A mortgage preapproval offers several perks. These are some of the highlights.

• Demonstrates to sellers that you are a serious, qualified buyer: It takes extra work to get a preapproval, and sellers may appreciate that you already have a relationship with a lender.
• Allows you to know your maximum purchase price: You don’t have to waste time looking at homes that stretch beyond your preapproval amount. You can focus your efforts on properties that are within your budget. 
• Speeds up the mortgage process once you find a home: You already had to assemble the necessary documents for the preapproval process. You’re ready for the application, and it can be even quicker if you work with the same lender.
• Gives you an advantage over buyers without preapproval: You can stand out among other buyers and give the seller more certainty than buyers who don’t have preapproval.
• Locks in your interest rate for a period of time: Your interest rate is typically locked in for 30-60 days, giving you time to finalize a deal and compare options.
• Helps you understand what loan programs you qualify for: You can determine if you’ll qualify for a conventional loan, a government-issued mortgage, or another financial product.
• Identifies potential issues early in the process: Gaining more clarity over how much financing you’ll receive can eliminate some obstacles.
• Strengthens your negotiating position with sellers: Sellers may agree to reduce their price for your offer since they’ll have fewer headaches.

Find the Best Mortgage Offers From Benzinga’s Top Lenders

It’s a good idea to shop around and compare offers before committing to a mortgage. These are some of the top mortgage lenders available.

Getting Preapproved for a Mortgage

A preapproval can make it easier to get approved for a mortgage. Sellers will also be more eager to make a deal since preapprovals present fewer obstacles to confirming a deal. The preapproval process typically takes 7-10 days; a lender’s letter is valid for 60-90 days. Applying for multiple preapprovals and comparing options can help you get a better rate and term.

Frequently Asked Questions