Getting Pre-Approved for a Home Loan: What You Need to Know

A mortgage pre-approval document is part of the home loan pre-approval process and can help open the right doors to the properties you want to see in your home search. 

Think of it like a financial "passport" for homebuyers, says Reilly Renwick, chief marketing officer for Pragmatic Mortgage Lending. Here’s how to get pre-approved for a home loan and why it’s important.

What is mortgage pre-approval and why is it important?

A mortgage pre-approval letter shows sellers, their agents, and your real estate agent that your finances have been evaluated by a lender that is likely to allow you to borrow up to a certain amount.

“Possessing a pre-approval letter can greatly strengthen a buyer’s overall stance in the market,” Renwick says. It gives a “green light” to all sellers that the buyer is serious in their intent and financially prepared — an edge that is invaluable in competitive real estate markets, he says.

Having this letter can help you see certain properties, particularly if they’re in a higher cost range

Steps to getting pre-approved for a home loan

Getting pre-approved for a mortgage will require some documents that show how much house you can afford.

Here are steps to follow when you request pre-approval, according to Michael Branson, CEO of All Reverse Mortgage:

1. Check your credit: Start by pulling your credit score for free through AnnualCreditReport.com. You can also get a free credit report through Experian, Equifax, and TransUnion once a year. A good credit score (between 670 and 739) can help you get better loan terms because it shows lenders that you have a history of managing debt.
2. Gather your files: Lenders will need proof of your financial situation, like pay stubs, W-2s, tax returns, bank statements, and details about any debts you have. Self-employed borrowers might need to provide business tax returns or profit-and-loss statements, Renwick says.
3. Shop around for lenders: Compare lenders to find one with competitive rates and terms, Branson suggests. Keep in mind that you don’t need to apply for the final mortgage with the lender who gives you the initial pre-approval letter, but you would have to start the process over if you decide to change lenders.
4. Submit your application: Complete the pre-approval application with your chosen lender. Make sure to submit all the information and documents needed.
5. Wait for review: The lender will evaluate your financial details and may ask follow-up questions or request additional paperwork. Be ready to respond quickly to keep the process moving.
6. Receive your letter: If you’re approved, the lender will issue a letter saying how much it’s likely to approve you for. The lender will usually send you a digital copy that you can share with your agent and show sellers when you view homes.

Documents needed for mortgage pre-approval

Every lender’s requirements might be slightly different but, in general, it’s wise to pull together these documents for each person who will be named on the mortgage:

• Copy of your government-issued IDs
• Social Security number
• Credit report and credit score (unless lenders pull this themselves)
• Last two bank statements
• Last two pay stubs
• Last two years’ W-2s
• Explanations for any derogatory marks on your credit
• Information on current loans, credit card balances, or other debts you’re paying off
• Alimony and child support information, if this is part of your overall financial picture
• Self-employed individuals might need to show 1099s, balance sheets, profit-and-loss statements, and tax returns

According to Branson, lenders request paperwork to ensure that you have a steady income and manageable debt to determine whether you’re likely to repay a mortgage. They want to ensure that the amount they’re approving you for is possible for you to pay back based on your current salary and debts.

How to improve your chances of getting pre-approved

There are a few ways to boost your chances of a pre-approval for a home loan. Here’s what Branson suggests:

• Fix your credit score: Pay down debts, make payments on time, and avoid opening new credit accounts right before applying. A solid credit history shows lenders you’re responsible with money.
• Save for a bigger down payment: The more you can put down upfront, the less risky you look to lenders. This could also help you get better loan terms. 
• Show stable income: Keep steady employment and, if possible, avoid major job changes before or during the pre-approval process. A consistent income and stable employment history show it’s likely you’ll be able to pay back the amount you borrow.
• Avoid big purchases first: Avoid adding major expenses or new loans (like adding a car loan) before you get pre-approved. Adding new costs can affect your credit score and debt levels.
• Reduce overall debt: Lowering your debt-to-income ratio (DTI) makes you a safer bet for lenders. Pay off or reduce credit card balances and other loans where you can. Don’t close any credit cards when you’re looking to get a mortgage pre-approval as it can ding your credit score.
• Ensure you’re providing accurate employment contacts: It could be beneficial to let your employer know that a lender might be contacting them in the next week or two to verify employment. Check if there’s a particular name, contact number, and/or email that the lender should contact for a quicker response. You don’t want to have the mortgage preapproval process stalled because the lender was sent to a general email inbox or called someone who is out of the office on vacation. 

Understanding the difference between pre-approval and prequalification

“Pre-approval and prequalification are a bit similar, but preapproval is a lot more detailed and more reliable,” Branson says.

• Prequalification is a quick and informal estimate of how much you could borrow based on basic self-reported information, like your income and debt. It’s usually done online or over the phone without a deep dive into your finances. You likely won't need to submit tax forms, income proof, or credit information at that time. 
• Pre-approval usually involves a hard credit check, and you may need to submit documents like pay stubs and tax returns.Some financial institutions will use terms like “verified preapproval” which includes locking in an interest rate and making the final closing process move a bit faster. 

With pre-approval, you get a letter stating how much you’re likely to be approved for, which carries more weight when looking at houses or submitting an offer. Prequalification, on the other hand, doesn’t carry any weight with the seller. It can be useful as a first step on your homebuying journey because it gives you a rough idea of how much house you can afford.