How Do I Get Pre-Approved for a Mortgage?

To get pre-approved for a mortgage, you apply with a lender, authorize a credit check, and send proof of your income, savings, and debts; the lender then issues a letter stating how much it is willing to lend you. The letter helps a seller take your offer seriously. Final approval still depends on the home's appraisal and an underwriter's review of your updated file, so changes to your credit, job, or savings before closing can undo it.

What does a preapproval commit the lender to?

Read the letter's conditions. The CFPB says some lenders issue written commitments with prequalification or preapproval requests, valid for a set period and subject to limited conditions.

The CFPB says lenders do not use these labels the same way. Some issue a prequalification on unverified information and a preapproval only on verified information; others mix the terms. Ask the lender whether it reviewed your documents before issuing the letter.

If you have not submitted all six application items, including the property address, the lender can issue a preapproval without a Loan Estimate. Once you submit all six, federal rules require the lender to deliver or mail a Loan Estimate within 3 business days, even if preapproval is still pending. The mortgage approval process covers each stage after this one.

What the lender checks

A lender reviewing you for preapproval looks at four things:

• Credit report and scores. The lender pulls your report from the credit bureaus with your permission. Your score affects both whether you qualify and the rate; see minimum credit scores by loan type.
• Debt-to-income ratio (DTI). Your monthly debt payments, including the estimated new house payment, divided by your gross monthly income. For example, if you earn $5,500 a month, pay $550 a month on other debts, and the lender's limit is 45%, the lender caps your total debt at $5,500 x 45% = $2,475, which leaves $2,475 - $550 = $1,925 for the house payment. Limits differ by loan type; how DTI works explains which debts count.
• Income and employment. Pay stubs and W-2s that show what you earn and how long you have earned it.
• Savings. Bank and investment statements that show cash for the down payment and closing costs.

Steps to get pre-approved

1. Check your credit reports first. Get them free at AnnualCreditReport.com and dispute any errors with each bureau. The CFPB says correcting errors could raise your scores in 30 days or less. Checking your own credit does not affect your scores.
2. Gather your documents. For a conventional loan, Fannie Mae requires your most recent pay stub to be dated no earlier than 30 days before your application and to show year-to-date earnings, plus W-2s for the most recent 1 or 2 years depending on your income type. For a purchase, bank statements must cover the most recent 2 full months. The full document checklist covers self-employment, gifts, and other situations.
3. Pick at least three lenders. The CFPB suggests getting at least three written offers; banks, credit unions, and online lenders make home loans. Mortgage brokers arrange loans with lenders. How to choose a mortgage lender lists what to compare.
4. Apply with all of them within 14 days. Scoring models count mortgage credit checks made within a 14- to 45-day span as one inquiry, depending on the model, so 14 days is safe under all of them.
5. Authorize the credit check and submit your documents.
6. Review the letter. It should state the loan amount, the loan type, and an expiration date. If the lender decides you do not qualify, it must send you an adverse action notice.

How the credit check affects your score

A preapproval usually triggers a hard inquiry, a credit check made because you applied for credit. According to FICO, one additional inquiry takes less than 5 points off most people's FICO scores. Hard inquiries stay on your report for up to 2 years but count toward FICO scores for only 1 year.

Shopping several lenders does not multiply that cost if you keep the checks close together. How multiple mortgage applications affect your credit explains which window each scoring model uses and how to time your applications.

How long does a preapproval last?

Each lender sets its own expiration date and prints it on the letter. For a conventional loan sold to Fannie Mae, credit documents, such as your credit report, pay stubs, and bank statements, must be no more than 4 months old on the day you close.

If you were preapproved in March and close in August, expect the lender to ask for new pay stubs and bank statements and possibly to pull your credit again. Ask the lender at the start how it renews an expired letter and whether a renewal requires a new credit check.

What can undo a preapproval before closing?

Anything that changes the facts the lender relied on. The most common:

• New debt. A car loan, a new credit card, or furniture on credit raises your DTI. The CFPB warns that even financing a new refrigerator before closing could make it harder to get the mortgage.
• A job change or lower income. For a conventional loan, the lender confirms your employment again no more than 10 business days before closing if you are salaried.
• Income the lender cannot document. The CFPB lists overtime or bonus income that cannot be verified as a common reason a loan offer changes.
• A missed payment. A late payment can drop your score and change your rate or eligibility.
• A low appraisal. If the home appraises below the price, the loan terms can change and you may need more cash.
• A rate increase before you lock. Until you lock, the rate can move, and a higher rate raises the payment the lender uses to figure your DTI.