Qualifying for a mortgage is one of the most important steps in buying a home. While you probably won’t apply for the actual mortgage until after you’ve had an offer accepted on a home, you could need proof that you’re likely to qualify before you even begin looking.
That’s where a pre-approval comes in. A pre-approval not only indicates that you’re likely to qualify for a mortgage loan but also how much you can borrow — crucial information to have when it’s time to set your homebuying budget or convince a seller that you can afford to buy their home.
What is a mortgage pre-approval?
A mortgage pre-approval is a letter from a lender stating that you likely qualify for a mortgage loan. Unlike a prequalification, which relies on information you provide to the lender, a pre-approval is based on verified information about your income, debt, and credit history. It essentially tells you that unless your financial situation changes between now and closing, or derogatory information comes to light, the lender can probably approve you for a loan of up to the dollar amount shown on the pre-approval.
At the very least, a pre-approval demonstrates to your real estate agent, home sellers, and sellers’ agents that you’re serious about buying. More importantly, it shows how much you’re qualified to borrow and spend.
Remember, however, that a mortgage loan pre-approval is just that — it does not constitute a loan commitment or final loan approval. Those stages happen later in the mortgage application process. The loan isn’t definitively approved until you’ve received the final approval and have been cleared to close.
When should you apply for a mortgage pre-approval?
The best time to apply for a mortgage pre-approval is as soon as you’ve made the decision to buy and are financially prepared to make an offer when you find the right home.
You should have the pre-approval in hand before you ask to tour homes. Sellers and their agents often vet buyers to ensure that only those who’ve demonstrated the ability to purchase the home enter it, so starting your search without one will limit the homes you can tour.
Likewise, your buyer’s agent needs the pre-approval to know that you’re qualified to purchase and how much you can spend. While your agent might be willing to show you a home or two while the lender prepares your pre-approval, most sellers will not consider an offer that comes without one.
What it boils down to is that you’re not ready to tour homes until you get pre-approved for a mortgage because you’ll need the pre-approval to make an offer. Don’t wait too long to request one, though. Having to wait a couple of days to get your letter could allow another buyer to get their offer accepted before you’re even able to submit yours.
How to get a mortgage pre-approval
Getting a home loan pre-approval is similar to applying for a mortgage. Pre-approvals are actually underwritten, which means most of the lender’s work is finished by the time you apply for the loan.
Follow these steps to get a pre-approval:
- Select a lender. The easiest way to shop for loans and lenders is to get pre-qualified rate quotes, whether from lenders’ websites or a rate-comparison site. Just make sure the lenders only do a soft credit inquiry, which doesn’t affect your credit score, when they process the request.
- Gather the documents you’ll need for your pre-approval. The lender will give you specific instructions, but be prepared to submit the following:
- Most recent pay stub showing year-to-date earnings
- Two most recent years’ worth of W-2s and 1099s
- Two most recent months’ bank and investment account statements
- Two most recent years’ tax returns
- Credit card and loan statements
- Request a pre-approval for a home loan from your choice of lenders. Within a couple of days, you should receive a letter stating that you’ve been pre-approved for a home loan. The letter will include the type of loan and the term, as well as the loan and payment amount for which you’re pre-approved. The lender might also include conditions for final loan approval.
Keep in mind that showing sellers the full amount you’re qualified for can hurt your ability to negotiate if you plan to offer less. Your lender can issue you a letter showing any pre-approval amount you wish, up to the maximum for which you’re actually pre-approved.
How long does a mortgage pre-approval last?
Pre-approvals are usually good for anywhere from 30 days to 90 days, depending on the lender.
One reason pre-approvals expire is that your financial situation could change over time, which would mean the documentation you submitted is no longer accurate. You might have accumulated more debt, missed a payment, or withdrawn some of your cash reserves, for example.
Also, mortgage rates and programs change over time. The rate your pre-approval shows might not be available several months down the road. Whereas decreasing rates might work in your favor, higher rates could reduce the loan amount you qualify for.
Of course, your situation could also improve over time. If you’ve paid down debt, gotten a raise, or socked away extra savings, you could qualify for a larger loan or a better rate if you have to reapply for a pre-approval.
What happens if you don’t buy a home before your pre-approval expires?
What happens if your pre-approval expires before you buy a home depends on the lender. You’ll probably have to reapply, but the process will be easier this time because the lender will already have a lot of your information. However, you’ll likely have to submit new bank statements, pay stubs, and, if it’s past tax day, your most recent tax return.
Some lenders might do another hard pull on your credit report when they process your new pre-approval application. It’s important to keep that in mind when you’re deciding when to apply for a pre-approval. Hard pulls coming more than two weeks apart can impact your credit score enough to disqualify you from getting the best rates, or even from getting a loan.
Mortgage pre-approval FAQ
Does a mortgage pre-approval affect your credit score?
The pre-approval itself doesn’t affect your credit score, but the hard inquiry lenders make when checking your credit can cost you a few points. However, lender inquiries made within the same two-week period will count as a single hard inquiry.
Is pre-approval the same as prequalification?
While you might see the terms used interchangeably, they’re two separate things. Whereas lenders issue pre-approvals only after verifying your credit history and score, and your income, debt, and other aspects of your finances, they prequalify you based on unverified information you provide.
How far in advance should you get a pre-approval?
Pre-approvals are usually good for a maximum of 90 days, so it’s a good idea not to get one until you’re ready to buy.
Can you extend a mortgage pre-approval?
Whether you can extend depends on the lender’s policies. Lenders typically don’t extend mortgage pre-approvals beyond 90 days.
What happens if you don’t get a pre-approval?
If your lender can’t pre-approve you now, you’ll have to address the issues that disqualify you from borrowing. Your loan officer can give you specific actions to take, such as paying down debt, saving up more cash, “seasoning” a large bank deposit, or letting some time pass to reduce the impact of a late debt payment.
