A Fundamental Guide To The Mortgage Preapproval Process

Understanding how much home you can afford is crucial to the home buying process. Getting a mortgage preapproval can help estimate how much home you can buy, and help you budget for any costs related to the home purchase. It can also give sellers more confidence that you’re serious about buying their house.

What Is A Mortgage Preapproval?

A mortgage preapproval is documentation from a lender stating the amount you can afford for a home. To get preapproved, you will likely have to submit certain types of financial information and have lender perform a hard credit pull. A mortgage preapproval letter is also often used to show sellers that you have the funds to buy a home. While a mortgage preapproval is a promise that you can secure financial assistance, it’s not a guarantee from the lender you’ll receive a mortgage.

Mortgage Preapproval Vs. Prequalification Vs. Verified Approval

The terms “mortgage preapproval” and “prequalification” sometimes are used interchangeably, but they’re not the same. Same goes for the term verified preapproval. Use the table below to learn about the differences between prequalification versus a preapproval versus a Rocket Mortgage^® verified approval.

How To Get Preapproved For A Mortgage

There are several steps you’ll need to take when getting a preapproval for a home loan, including determining whether you meet minimum requirements, collecting relevant documentation and choosing a lender.

1. Meet The Financial Requirements For Home Loan Preapproval

Though it ultimately depends on the lender, here are some typical requirements for mortgage preapproval depending on the type of home loan you choose. Make sure that you can meet these requirements — checking your credit score before speaking to a lender will help see what your chances may be.

2. Choose A Mortgage Lender

A mortgage lender that’s the right fit can save you significant money in interest and fees. It can also help make it a much smoother process when it comes to finalizing your mortgage. Many lenders typically offer preapproval processes online, although there are some that offer ones over the phone or in person.

When comparing lenders, look for features such as interest rates, fees and types or home loans offered. You don’t want to go with a lender, for instance, that doesn’t offer the loan type you want or need. Considering lower interest rates could save you thousands of dollars over the life of a loan, it’s worth taking the time to shop around.

3. Collect Paperwork

Lenders will need to collect paperwork from you in order to start the mortgage preapproval process. Some of the documents necessary for mortgage preapproval include:

• Government-issued ID
• Social Security number
• Pay stubs from employer
• Bank statements
• Statements from investment or retirement accounts
• Tax returns from the previous 2 years
• W-2 or 1099 forms, and profit and loss statements if you’re self-employed
• Statements from existing loans

4. Apply For Preapproval

Choose the lender you want to work with and follow their directions on what to do to submit an application for a mortgage preapproval. Make sure that you provide accurate contact information about you and your co-borrower (if applicable) and the documentation mentioned in the previous step.

5. Receive A Mortgage Preapproval Letter Or Verified Approval Letter

The lender will look over your financial details and make a decision. If approved, you’ll receive a preapproval letter — our friends at Rocket Mortgage® may offer you a Verified Approval Letter (VAL). The letter will state a specific amount the lender is willing to lend you and when the offer will expire. You may be able to request adjustments to your preapproval letter, depending on the price of homes you’re making offers on. For example, if you’re interested in a home listed for $175,000 and your preapproval letter says you’re approved up to $200,000, you may want to request that your letter be updated to the lower amount, knowing you have the negotiating power to increase your preapproval amount if there are competing offers on the property.

6. Don’t Make Large Purchases Until Closing

Though it’s not technically part of the mortgage preapproval application process, this step is worth talking about. To help increase your chances of getting a final approval for a mortgage, hold off on making any large purchases or taking out another loan. Your mortgage preapproval is based on your current financial situation, and drastically changing it could affect how much you can get in funding, if any at all. If you do plan on making a big purchase, speak with your lender as you’re submitting documentation to see if that can affect their decision.

Mortgage Preapproval FAQs

To learn more about getting preapproved for a mortgage, read these frequently asked questions.

How long does mortgage preapproval last?

How long a mortgage preapproval lasts will depend on the lender, though it typically spans from 30 – 180 days. On average, you can expect a mortgage preapproval letter to last around 90 days. To see how long your preapproval letter could last, speak with your lender.

Is it worth it to get a preapproval for a home loan?

It can be worth it to get a preapproval for a home loan because you tend to have a better understanding of how much you can afford to pay for a home. Plus, it can also help you narrow down your choices when it comes to looking at homes that fall within your budget. Even if it’s not a seller’s marketing, having a mortgage preapproval is helpful because it shows real estate agents and home sellers that you’re in a good place financially and are serious about buying a home.

How long does it take to get a mortgage preapproval?

How long it takes to get a mortgage preapproval will depend on the lender. In most cases, the process can take as little as a few days, assuming the lender receives all your information in a timely fashion. However, if the lender needs more documentation from you, then the process could take longer.

How far out should I get preapproved for a mortgage?

Getting a preapproval for a mortgage can happen at any time do your home buying process. Keep in mind that the mortgage preapproval letter does expire, so you’ll want to have enough time to shop around for a house before that expiration date. You don’t want to risk having the mortgage preapproval letter expiring, and having to go through the process again.

Do mortgage preapprovals affect credit?

In many cases, mortgage preapprovals require a hard credit pull, which can temporarily lower your credit score. Ask your lender to see if that’s the case before submitting your documentation.

What happens if I don’t get preapproved for a home loan?

When you get denied for a home loan, most lenders will provide a reason why you weren’t approved. Even if not, you have the right to contact the lender to get a justification for their decision. For example, maybe your debt-to-income (DTI) ratio was too high, or you’re self-employed and can’t come up with 2 years’ worth of profit and loss statements. Whatever the reason may be, take these into consideration and take the time to improve them before applying again. If your DTI is high, steps you could take include paying down debt or finding ways to increase your income. Or, you may have to wait until you have several years of tax returns if you’re a self-employed individual.

Is mortgage preapproval required?

Getting a mortgage preapproval isn’t required. However, it can give you a more competitive edge among other buyers. It can also help you decide on a housing budget and narrow down your search, saving you time. Mortgage preapproval letters can be really useful if there are multiple bids on a home — sellers want to know their buyers can back up their offers with funding.

The Bottom Line

A mortgage preapproval letter shows how much home you can afford, and can show home sellers you’ve got the financial means to make a purchase offer. While it can take anywhere from several days to a week to go through the process, doing so can be worth it.

Before choosing a lender and applying for a mortgage preapproval, look at your credit profile, income and any other financial information that could give you clues as to whether you can get approved for a loan. Equally important is to confirm whether you have the means to pay for upfront costs out of pocket, such as the down payment on a home and any closing fees charged by your lender.

One of the first steps to getting a better insight into your financial situation is by tracking your money, and setting savings goals you can track. You can track these numbers manually, but using a free app like Rocket Money^SM can be a much more convenient and efficient method. Rocket Money automatically tracks your transactions from linked accounts and can offer insights such as upcoming bills, subscriptions and more. Sign up for a free account today.

^[1]Participation in the Verified Approval program is based on an underwriter’s comprehensive analysis of your credit, income, employment status, debt, property, insurance and appraisal as well as a satisfactory title report/search. If new information materially changes the underwriting decision resulting in a denial of your credit request, if the loan fails to close for a reason outside of Rocket Mortgage’s control, or if you no longer want to proceed with the loan, your participation in the program will be discontinued. If your eligibility in the program does not change and your mortgage loan does not close, you will receive $1,000. This offer does not apply to new purchase loans submitted to Rocket Mortgage through a mortgage broker. This offer is not valid for self-employed clients. Rocket Mortgage reserves the right to cancel this offer at any time. Acceptance of this offer constitutes the acceptance of these terms and conditions, which are subject to change at the sole discretion of Rocket Mortgage. Additional conditions or exclusions may apply.