How to Get Preapproved for a Mortgage: Key Steps to Take Before You Apply

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A mortgage preapproval provides an estimate from a specific lender that details how much they’re willing to lend you based on your application. 

Mortgage preapprovals are different from a prequalification. 

A prequalification gives you a general estimate based on basic, unverified information like monthly income and self-reported monthly debts. They may use automated systems to provide quick baseline information. 

Preapprovals have much more exhaustive applications that review your income, assets, debt-to-income (DTI) ratio and credit score. They pull your credit score to verify this information. They’re conditional offers that will include information like maximum loan amount, the loan’s terms, and the expiration date of the preapproval. 

Benefits of Getting Preapproved

Getting preapproved for a mortgage offers significant benefits for prospective home buyers:

• Shows sellers you’re serious: Buyers who have been preapproved are taking the process seriously and have taken steps to act. That’s appealing to sellers who likely want to complete the process quickly and easily. 
• Increases offer competitiveness: Preapprovals reduce a seller’s concerns that you won’t be able to actually afford the offer you’ve made, or that you’ll struggle to find a lender.  
• Helps you determine budget: Preapprovals provide incredibly detailed breakdowns regarding maximum loan amount, loan terms and estimated interest rates to help you assess what you can actually afford. 
• Assess your loan options: You can receive preapprovals for different types of loans and from different lenders, allowing you to carefully review your loan and lender options in advance. 
• Speeds up the mortgage process: While preapprovals are a conditional offer and you’ll still need to complete the underwriting process, having them in hand can speed up the mortgage review and closing process significantly.  

Keep in mind that preapprovals are both useful to you and sellers. Some sellers may not even allow buyers tour their home if they don’t have proof of a preapproval. 

Steps to Get Preapproved for a Mortgage

When you’re ready to get preapproved for a mortgage, you can take the following steps. 

1. Check Your Credit Score 

Many lenders have minimum credit scores for different loan types. While this can be lender-specific, here are a few solid guidelines:

• Most lenders require a minimum score of 620 for a conventional mortgage 
• Some lenders may have a minimum credit score of 500 for government-backed loans like FHA loans. 
• Some lenders may be open to manual underwriting processes for potential borrowers who don’t have any credit.

You can check your credit score using free tools like Experian. Many credit card companies also provide your credit score for free.

How to Improve YourCredit Score 

Borrowers with higher credit scores will likely receive better loan terms, including lower interest rates. If needed, you can take the following steps to improve your credit score before applying:

• Pay off as much as debt as possible to reduce your DTI ratio.
• Avoid opening new accounts or taking out new loans, outside of your preapproval applications. 
• Pay your bills on time.
• Dispute any inaccurate information on your credit report. 

2. Gather Financial Documents 

During the preapproval process, you’ll be asked for a variety of essential financial documents. It’s much easier to consolidate those documents upfront. These may include:

• Income verification documents, including W-2s, recent tax returns, and recent pay stubs.
• Debt and asset statements from credit cards, loans, bank statements, and retirement accounts.
• Employment history verification. 

Self-employed individuals may be required to provide additional statements, including two to three years of tax returns and profit and loss (P&L) statements. 

3. Choose a Lender

Preapprovals are conditional offers from specific lenders, so it’s helpful to get preapprovals from lenders you’re interested in working with.

When reviewing your options, consider the following:

• Assess their rates and fees: Some lenders publish this information online, while others may provide it when you speak to a loan officer. Some will offer more competitive interest rates, but make sure you look at loan fees and estimated closing costs, too. 
• Read customer feedback: Look online at customer reviews for each lender. It’s important to find a trustworthy, reliable and communicative lender. 
• Review offer programs: Some lenders may have bonus offers for home buyers, such as offering to cover part of your closing costs if you meet certain conditions. 
• Consider your own needs: You may need a lender that offers an FHA or VA loan, for example, or manual underwriting. Similarly, some lenders may be more friendly to self-employed individuals than others. 
• Ask your real estate agent: If you’re already working with a real-estate agent, you can ask if they have a lender they recommend. They may have someone they trust, but keep in mind that agents may also have partnership programs with lenders. Always get more than one quote. 

You can consider both online and traditional lenders. Traditional lenders are often established nationwide, and may offer a variety of mortgage options. They may, however, have stringent approval processes and requirements. Online lenders may offer more flexibility in approval processes, depending on what you need. 

4. Submit a Preapproval Application 

After you’ve chosen a lender, you can navigate to their site and submit their preapproval application. 

This process will typically involve:

• Entering identifying information, including name, address and contact information of all borrowing parties.
• Adding income information.
• Uploading important financial documents.
• Disclosing monthly payments and debt.
• Stating where you want to buy a home, and ideally how much you’d like to borrow.
• Defining which loan types you’re interested in.

The amount of time it takes to receive a preapproval depends on each individual lender. Some lenders may be able to provide a preapproval in as soon as 24 hours, while some organizations like Bank of America let borrowers know they’ll receive a preapproval letter within 10 business days.  

5. Receive and Review Your Preapproval Letter 

After receiving your preapproval letter, you should review the following:

• Loan amount: This tells you the maximum amount you can borrow from the lender.  
• Interest rate: This is only an estimate based on your credit score and current market conditions; it can and likely will change until your loan is locked in during underwriting.  
• Conditions and terms: This determines the conditions of the loan, including downpayment requirements, estimated closing costs, and duration the loan. 

Ask your lender if you have any questions, and don’t forget that you can get preapproved with multiple lenders to find a loan with the best terms for you.

What to Do After Getting Preapproved

After getting preapproved, it’s important to do the following:

• Stay within your budget: When house hunting, stay within your budget to avoid falling in love with a home you can’t afford
• Avoid major financial changes: Try to avoid changing jobs, taking out a new car loan, or opening a new credit card– even if you don’t plan to use it yet! Any changes to your financial situation could cause your preapproval to be revoked.
• Work with a real estate agent: Real estate agents can help you find the right home in your budget. 
• Get clarification: Ask your lender about any questions you have surrounding your preapproval. 

Common Reasons for Preapproval Denial

There are several common reasons that can result in preapproval denial:

• Your credit score is below the lender’s minimum requirements.
• You have a high debt-to-income ratio, even if you’re a high earner.
• You have an unstable employment history.
• There’s incomplete or inaccurate application information. 

Some lenders will tell borrowers why they weren’t preapproved for a loan, while others won’t. You can always contact a loan officer and ask if you have any questions; a revised application or changes to your financial situation may help you receive a preapproval next time. 

How to Strengthen Your Mortgage Application

You may be fully ready to start applying with lenders, confident in a preapproval. If you’re concerned, however, there are steps you can take to strengthen your mortgage application.

You can leverage the following strategies in hopes of increasing your odds of preapproval: 

The Bottom Line

Mortgage preapproval offer significant benefits to homebuyers, giving you clarity into potential mortgage terms and making your offer more competitive with sellers. It’s a critical first step in financial readiness, which is essential to take before actually house hunting.

Make sure that you review lender options carefully, and shop around for rates and fees. You can get preapproved from several lenders within the same time frame without receiving penalties for multiple pulls, so leverage that to find the lender with the best terms for you.

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