5 Things You Need to Get Pre-Approved for a Mortgage

Learn what you need to speed up the approval process

Mortgage lenders offer pre-approval letters to buyers they believe can repay their loans. However, unlike mortgage pre-qualification, the pre-approval process is a more detailed look into your finances, including running a hard check on your credit. Your pre-approval letter may include everything from your maximum loan amount to your estimated interest rate. The letter will also have an expiration date for when the terms of the pre-approval letter are valid.

However, while the terms pre-qualification and pre-approval may be used interchangeably, they don’t necessarily mean the same thing. Let’s break them down.

Key Takeaways

• Mortgage pre-approval is a more thorough evaluation of your finances than pre-qualification.
• During the mortgage pre-approval process, a lender will likely conduct a hard credit inquiry and look at documentation such as proof of employment, income tax returns, and assets. 
• A mortgage pre-approval is usually valid for around 90 days, but it can also be valid for 30 or 60 days.
• The lender will relay the maximum loan amount the borrower can take out in the mortgage pre-approval letter.

Pre-Qualification vs. Pre-Approval

A pre-qualification letter includes a preliminary estimate of how much of a loan you may be eligible for based on self-reported financial data. If you’re looking for a mortgage, you may have visited the lender’s website and entered details such as your income and desired loan amount. In this case, the lender may have sent you a letter outlining an estimated loan amount you’re eligible for and, at the most, ran a soft inquiry into your credit.

The pre-qualification process is usually quicker than the pre-approval process and typically doesn’t require tax information from you.

On the other hand, a pre-approval letter indicates that the company has taken more time to look into your financial profile as a mortgage candidate. It likely has run a hard credit check, which involves requesting a copy of your credit report from one of the three major credit bureaus. A single hard inquiry can shave a few points from your credit score. 

In the pre-approval process, the lender will likely ask for pay stubs, W-2 statements, and signed tax documents from previous years. This may take a week or longer, depending on the lender. However, having a pre-approval letter at hand often shows you’re more serious in your home-buying journey and may offer a competitive edge over other home buyers. You generally need to provide sellers with a pre-approval letter before they accept an offer. 

Note

A pre-approval letter is not a guarantee that you’ll get a mortgage. If there are changes, for instance, in your financial profile after receiving this letter, you may not get a loan.

Requirements for Pre-Approval

Mortgage pre-approval requires a buyer to fill out a mortgage application; provide proof of income, employment, and assets; and demonstrate good credit through a hard credit pull.

Proof of Income

Your lender may require proof of income through W-2 statements from the last couple of years. 

Proof of Assets

Another document lenders may need for a pre-approval letter is proof of assets, which can be your bank or investment account statements. These statements need to show evidence that you have enough cash to pay for expenses such as, but not limited to, the required down payment and associated closing costs. If you do not have the expected down payment requirement (usually around 20%), your lender may require you to purchase private mortgage insurance (PMI). 

Good Credit

Usually, conventional mortgages require you to have a credit score of 620 or higher. However, mortgages insured by the Federal Housing Administration (FHA) and other agencies may allow you to get a loan at a lower credit range. For instance, borrowers with a credit score as low as 500 may be able to take out a mortgage backed by the FHA. Lenders get a sense of your credit score by requesting a copy of your credit report, otherwise known as a “hard credit inquiry,” from one of three major credit bureaus. 

Employment Verification

To verify your employment during the pre-approval process, a mortgage lender may look at your W-2 forms and seek an official employment verification letter. They may also call your employer to verify your job title, income, and employment status. 

Other Documentation

During the pre-qualification process, you may also be required to provide your driver’s license, Social Security number, and consent for the lender to conduct a credit inquiry. If you are self-employed, you may need to provide additional income documentation.

Important

Upfront fees on Fannie Mae and Freddie Mac home loans changed in May 2023. Fees were increased for homebuyers with higher credit scores, such as 740 or higher, while they were decreased for homebuyers with lower credit scores, such as those below 640. Another change: Your down payment will influence what your fee is. The higher your down payment, the lower your fees, though it will still depend on your credit score. Fannie Mae provides the Loan-Level Price Adjustments on its website.

Pre-Approval vs. Approval

A mortgage pre-approval is one of the early steps in buying a home. It is a conditional (but not permanent) commitment from your lender to offer you a loan of a select balance, interest rate, and other criteria. You are not guaranteed that you will get the mortgage.

Final approval is one of the last steps before closing your mortgage. By this time, mortgage underwriters have reviewed your application and financial documents. They may accept your application with or without certain conditions or deny it altogether.

The property you wish to buy has likely also been financially appraised. This is to ensure that the property value aligns with the loan amount. 

What If You Don’t Get Pre-Approved?

If you don’t get pre-approved, you should note the reason. If, for instance, it shows your debt-to-income (DTI) ratio is too high, making you a risky candidate for the lender, you may choose to work on paying off your debt. For instance, the maximum DTI is around 36% for Fannie Mae-backed loans. Depending on the loan type you’re considering taking out, you may want to see where your debt profile lies. 

Consider asking your lender how to improve your application for your next attempt at pre-approval. 

The Bottom Line

The mortgage approval process is more in-depth than a simple pre-qualification. Lenders take the time to look at your proof of income, assets, credit score, and evidence of employment, among other documents. It’s a more serious signal to sellers that you want to buy their home.