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Mortgage Preapproval: How (And When) To Get Preapproved For A Home Loan

Kevin Graham7-minute read
January 25, 2022

When you're getting ready to buy a home, one of the first things you’ll have to think about is how much you can afford. A mortgage preapproval from a lender will tell you exactly that, so when you go to make offers on homes, you know exactly how far your budget will take you.

In addition to giving you a good idea of your price range, this also gives sellers the confidence that you have the financing necessary to back up your offer. Sellers want just as much certainty when they sell their home as you do when you’re buying it. Although it’s not a guarantee nothing will go wrong, your mortgage preapproval gives them much more confidence that your financing won’t fall through at the last second.

In this article, we explore how the mortgage preapproval process works and how to get started.

What Is A Mortgage Preapproval?

A mortgage preapproval is a mathematical evaluation by a lender of exactly how much you can afford to spend on a home. Getting a mortgage preapproval signals your seriousness to sellers because you've taken steps to line up a loan. They will know that your finances have been reviewed and you can afford to pay the price you’re offering. This gives you an advantage over offers without a preapproval and can decrease the time it takes to buy a house.

While a preapproval dictates the top end of your budget, there’s nothing obligating you to spend that much. It’s important to consider your financial picture and future goals holistically.

You want to make sure you leave room in your budget for things like emergency funds, retirement savings, college funds and family vacations. You’ll also want to set aside 1% – 3% of the purchase price for home maintenance.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

What Is A Preapproval Letter?

A mortgage preapproval letter is an important part of the home buying process. A preapproval letter is a physical representation of the amount you can afford that you can hand a seller with your offer. It’s not a commitment to lend, but it is a promise that you should be able to secure financing if all goes well.

You can also change the amount on your preapproval letter, up to your full preapproval amount. That way, you’re not showing the seller that you’re approved for thousands more if it doesn’t match the offer you want to make on the house.

A mortgage preapproval letter is not an absolute necessity in order to purchase a home, but it does put you a step ahead. Most home sellers will be looking for a preapproval letter or other proof of funds to make sure that you can execute on the purchase contract before they will accept your purchase offer. Preapproval letters are especially helpful in a seller’s market, where your offer may be up against those of multiple other potential buyers.

A preapproval letter usually comes with a certain amount that the lender is willing to lend as well as an expiration date for how long the preapproval letter is good. In order to get a preapproval letter, a lender will usually gather all of your financial information and run your credit. While there is no exact credit score needed to buy a house, the higher the better!

Mortgage Preapproval Vs. Prequalification

The difference between prequalification and preapproval is the level at which the lender looks into your financial history.

A mortgage prequalification may or may not involve a lender pulling your credit report. In any case, they get a verbal or written estimate of your income and assets. This is a more informal step where a lender takes a look at the basics of your finances. These are usually things like your income, expenses and any existing loans and loan payments you might have. Then the lender will make an estimate of how much house you can afford. Depending on your financial situation, you may choose to skip the prequalification step and move right along to the mortgage preapproval.

A mortgage preapproval is much more than this. A preapproval letter is more of a commitment from the lender that, assuming nothing changes with your financial situation and the appraisal goes well, you qualify for your financing. It’s further along in the process than a prequalification.

Because a preapproval requires actual verification of documentation and your credit score, you can be much more confident in the terms of the preapproval letter, including how much you can afford at a hypothetical interest rate. That’s why most real estate agents will want you to have a mortgage preapproval letter that you will submit along with any purchase offer you make.

Because lenders tend to use the terms interchangeably, it’s important to understand what you’re getting when you talk to a lender. In order to cut down on the confusion, our friends at Rocket Mortgage® call prequalifications Prequalified Approval. Preapprovals are Verified Approvals.[1] We encourage everyone to take the step to get a full Verified Approval.

How To Get Preapproved For A Mortgage

Let’s review the steps you’ll need to take to get preapproved for a mortgage.

1. Gather Your Documents

In order to get preapproved for a mortgage, you and any coborrowers will submit your financial information to your lender. The exact documents will vary slightly by lender, but here is a checklist of documents typically needed for a mortgage preapproval:

  1. Copies of driver's licenses and Social Security cards
  2. 2 to 3 most recent pay stubs from your employer
  3. 2 to 3 months of bank statements
  4. Account balances and statements for investment or retirement accounts that you wish to use to qualify
  5. Tax returns for the last 2 years (including business returns if you own 25% or more of a business) or a signed Form 4506-C
  6. W-2 or 1099 forms for the past 2 years (If you’re self-employed or an independent contractor, you’ll likely need to provide profit and loss statements for the current year as well.)
  7. Statements for each debt account, such as existing mortgages, auto loans or student loans
  8. If you’re currently renting, you might also want to provide a statement from your landlord showing on-time rent payments

2. Get Your Finances Checked

In a traditional preapproval, your lender will pull your credit report to get a look at your existing debt and any negative items (such as a bankruptcy or foreclosure) showing up that might have an impact on your mortgage approval.

Your gross monthly income is compared to the debts showing up on your credit report to determine what percentage of your monthly income goes toward debt payments. This is your debt-to-income ratio (DTI). In order to have the best chance of qualifying for the most mortgage programs, you’ll want to keep your DTI at 43% or lower. However, every mortgage option is different.

3. Consider Your Timeline

Each mortgage preapproval is typically good for a particular amount of time. After that period of time is over, the preapproval is no longer valid. If you get preapproved before you’re ready, your preapproval letter could expire before you get the chance to shop for a home.

If your mortgage preapproval does expire, you can always renew it by talking with your lender and having them re-review your financial information. Keep in mind as well that even though a mortgage preapproval letter is good for a specific period of time, it is not a guarantee. The lender generally will reserve the right to rescind the preapproval letter if your financial situation materially changes.

FAQ: Mortgage Preapproval

Now that you know the basics of what it means to have a rock-solid preapproval, let’s take a second and answer some of the most common questions.

How long does getting a home loan preapproval take?

Once the lender has all of your information, the preapproval process can take as little as a few days. In fact, most Verified Approvals from Rocket Mortgage are accomplished in around 24 hours.

Sometimes the lender will require more information, which can take more time. That’s why it’s a good idea to make sure that your documents are all in order before you start the home buying process.

Why is it important to get a mortgage preapproval?

Mortgage preapprovals give potential buyers certainty in their budget. Before they ever start house hunting, they’ll know how much they can afford so that they don’t waste time looking at listings that are too rich for their pocketbook. This significantly narrows the search and can make the process easier.

In addition to the budgetary benefit, having a preapproval also holds sway with sellers. It shows that you are a serious buyer who’s gone and done legwork on financing ahead of time. This makes the deal much more likely to close, which could help set your offer apart from others. This could be very important, especially in highly competitive markets.

How long do mortgage preapprovals last?

Mortgage preapprovals typically last 30 – 180 days, with most mortgage preapproval letters being good for around 90 days. As always, check with your particular lender or shop around to find a lender that fits what you’re looking for. 

The Bottom Line

A mortgage preapproval helps potential home buyers know exactly what their budget is prior to shopping for a home so that they don’t look at homes beyond their means. Real estate agents and sellers will want to see a preapproval letter because it assures them that you’ve taken steps toward securing financing and you can afford the offer you’re making.

You can get a prequalification by verbally or otherwise giving estimates of your income, your assets and your credit situation, but it’s always better to get a full preapproval backed by documentation so that you and sellers know for sure what you can afford. This documentation includes income statements, bank statements and any other accounts you want to use for assets.

If you’re ready, you can get started online with a Verified Approval from Rocket Mortgage®.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage he freelanced for various newspapers in the Metro Detroit area.