How to get pre-approved for a mortgage

Buying a house is complicated, but you might not have considered some important elements of the search process before you start viewing homes. A common thing prospective homebuyers forget is that they should get pre-approved for a mortgage before getting serious about searching for a home.

You can easily get mortgage pre-approval by finding a lender and submitting an application, which usually requires a credit check and documentation of your finances. The process shouldn't take long, and you can often get pre-approved in minutes with online lenders.

What is a mortgage preapproval?

A mortgage pre-approval is an estimate for how much a lender, like a bank or credit union, thinks you can afford. Pre-approval is documented in a letter that shows how much a lender is willing to let you borrow for a home loan. The pre-approval letter shows home sellers and their agents that you're prepared to move forward with your mortgage financing, provided your financial situation doesn’t change drastically during your home search.

The lender looks at your financial profile (including your income, money in the bank and investment accounts, your debts, and your credit) to make an informed estimate of how much house you can afford. Between your down payment and the mortgage, the pre-approval letter gives you a top-end of your budget. It also is the first step towards formally qualifying for an official loan.

→ How much house can you afford? Use our mortgage calculator to find out.

What does a pre-approval letter include?

A standard mortgage pre-approval letter includes:

• Your name
• The price of the home you provided when requesting pre-approval
• The loan amount the lender is willing to extend you
• The expiration date of the pre-approval letter

Some lenders might also stipulate that the pre-approval only applies to certain types of homes, like single-family vs multi-family homes.

What’s the difference between pre-approval and pre-qualification?

Pre-approval and pre-qualification are sometimes used interchangeably, but this is a mistake.

A pre-qualification is for people who aren’t financially ready to buy a home, but are beginning to think about it. It’s a more informal evaluation of your credit, debt, income, and assets, allowing a lender to estimate whether or not you could qualify for a mortgage and how much you may be able to borrow.

Pre-approval is the step after pre-qualification, for buyers who are actively looking to buy a home and start house hunting. This is a more strenuous and more official process that typically incurs a hard check on your financial situation, including your credit. You don’t need to do a pre-qualification if you’re confident in your financial health and ready to start shopping.

→ Learn how much money you should save to buy a house

4 steps in the mortgage pre-approval process

A mortgage pre-approval conveys to a seller that you’re a serious buyer. Showing up to an open house at your dream home without pre-approval is a great recipe to miss out on the home to a more prepared buyer. The steps to getting pre-approved are:

1. Get your financial ducks in a row

Before you let a lender into your personal finances to draw an impression of you, make absolutely sure you’re ready to go.

• Check your credit score: Most lenders prefer a credit score of 620 or higher to qualify for a mortgage. (Lower credit scores are acceptable for some types of loans, like FHA loans.) A credit score will most likely make you eligible for the best mortgage rates. If you’re hovering close to that number, it may pay off in the long run to wait to get over the threshold as it can lower your monthly payment. You’re legally entitled to a free copy of your credit report from each credit bureau once per year. ‍
• Calculate your debt-to-income ratio (DTI): Your DTI is the percentage of your gross monthly income that you pay towards debts, like credit cards and student loans. This is a very important number to lenders, who prefer borrowers with a DTI of 36% of below, including the prospective mortgage payment. If you have very high debts and want to buy a home, you should look to refinance where you can or pay down debt aggressively before taking on a mortgage. Otherwise, you risk getting denied a mortgage or incurring high interest rates.
• Check all of your financial accounts: Don’t estimate how much you have in that retirement account, or what you’ve put away in two years of direct deposits - figure it out exactly.

→ Find out what mortgage rates factors you can control

2. Shop for lenders

There are many lenders out there and not all of them will offer you the same interest rate. It’s in your best interest to shop around to find a lender or mortgage broker that offers the lowest rates and fees for your mortgage. If you have a real estate agent, they can help you find a lender, too.

If you’re very keen to get the best rate possible, pre-qualification is a good way to go. Getting pre-qualified with multiple lenders won’t impact your credit and is a good way to get quotes from lenders who don’t make them readily available.

You can get pre-approved by multiple lenders, just remember you’ll have to go through the process each time and make sure you do it within 45 days to avoid a bigger impact on your credit.

3. Submit your documents

When you’re ready to formally apply for pre-approval, it’s time to gather and submit all of your documentation of your income, assets, and debts. This usually includes:

• Pay stubs from at least the past 30 days
• W-2s from the past two years
• Proof of other income sources like bonuses or commissions, rental revenue, or alimony)
• Bank statements, including checking, CDs, and retirement savings from at least the past two months
• Loan bills for any outstanding loans and letter explaining any new loans you’ve received recently
• ID, such as a driver’s license or passport

If applicable:

• Letters from anyone giving you a gift to use for a down payment
• Court records if you’re recently divorced or filed for bankruptcy

Self-employed individuals who are applying for a mortgage may also need to include information from business accounts or go through an income audit. Your lender will let you know. You’ll have to do this with every lender you apply for pre-approval with, so make sure you have it all ahead of time.

→ Learn what documents you need for your mortgage application

4. Receive your pre-approval letter

When the lender finishes assessing your credit and financial profile, you’ll get a determination of how much money you’re pre-approved for. (Or you’ll be denied.) This is when you get your pre-approval letter.

Lenders frequently use the “28/36” qualifying ratio to determine the monthly payment amount you can afford. That means they think a mortgage payment should take up no more than 28% of your gross monthly income and your DTI is no higher than 36%, including the mortgage payment.

When should I get pre-approved for a mortgage?

The time to get pre-approved is right before you feel ready to look seriously for a home. You want to have as much time as possible in the pre-approval period, and it’s important to note that a pre-approval is not a guarantee that you will receive a loan for the pre-approved amount (or at all).

It’s best to get pre-approved just before you start home shopping and in a period when you know you won’t have significant expenses, like a car or tuition payment due, as these financial changes could impact your chance of getting a loan. Depending on conditions of the real estate market, you may need a pre-approval letter in order to start touring homes.

Mortgage pre-approval letters expire after a few months, so keep that in mind before as you prepare to make an offer on a home.

→ Learn more about how long mortgage pre-approval lasts

How long does it take?

Getting pre-approved could take as little as one business day, depending on the mortgage lender you work with. It may take a few days or up to a week. It’s longer if you have to undergo an income audit or other verifications. Generally, though, if you have your paperwork in order and your credit and finances in healthy shape, pre-approval should be a fast process.

Does mortgage pre-approval affect your credit score?

Speaking of timing, if you’re worried about your credit taking a hit, you should probably focus on improving it before applying for a mortgage pre-approval. Getting pre-approved for a mortgage does have an impact no your credit score, albeit a small one. 

When lenders check your credit, they usually perform a hard k inquiry which will come off your report after two years. If you’re planning to get pre-approval letters from multiple lenders, you should do it within a 45-day window because inquiries within this time frame all count as a single credit check, rather than multiple ones.

Related: Does buying a home affect my credit?

What to do if you can’t get pre-approved

If you’re denied pre-approval, the first thing to do is ask why. It might be an easy thing to remedy, like a credit report error. The lender might be unusually stringent in pre-approvals, so you could go and find a more flexible lender.

Otherwise, the lender will give you the information you need to come back and try again. Maybe your credit score is too low or you have too much debt. Whatever it is, you’ll have to find a way to rectify the issue if you want to get pre-approved for a mortgage and, eventually, own a home.

→ Learn how to get your mortgage from clear to close