How to Get Preapproved for a Home Loan

If you’ve been thinking about buying a home, you’ve probably been advised to get preapproved for a mortgage to improve your chances of getting your dream home.

A preapproval doesn’t guarantee the success of your loan application. A small percentage of preapprovals don’t turn into mortgage commitments, often because something is wrong with the chosen property.

However, a preapproval communicates a level of credit and financial worthiness when shopping for a home — and most sellers won’t consider an offer if the buyer is not preapproved. In fact these days, many real estate agents and sellers won’t consider an offer complete unless it comes with a preapproval letter attached.

In light of that, we created a guide to the preapproval process, including what it means to be preapproved and what you need to know about the process before starting your homebuying journey.

What is a loan preapproval?

In the mortgage business, a preapproval is a process in which your lender vets your finances to see how much they can potentially loan you.

During this process, your lender looks at your income, assets, and credit score to determine which loans you may be a good candidate for and what your interest rate may be.

Once you have completed this process, they will issue a letter that you can show the seller when you’re making an offer on a home. The letter essentially acts as proof that you are considered financeable by a reputable financial institution.

What’s the difference between prequalification, preapproval, and pre-underwriting?

There are some key differences between each of them.

1. Prequalification

A mortgage prequalification is simply an estimate of how much you can afford to spend on a home. This process involves submitting estimates of your income, debts, and assets to a lender.

This process can usually happen very quickly, but since the figures are based on estimates, prequalification is considered less reliable than the other methods on this list.

2. Preapproval

A preapproval is the most common method to estimate how much someone could be approved for in a loan. When you’re preapproved, it means your lender has checked your credit score, verified your documentation, and approved you for a specific loan amount.

Based on that initial data, the lender can often estimate the maximum amount they would approve you for in a loan.

3. Pre-underwriting

You could also consider pre-underwriting if you want to take things a step further. At its core, pre-underwriting involves getting fully approved for a loan before you even submit an offer.

This version of approval requires the most legwork but it can be very useful, especially in hot markets.

If you’re interested in pre-underwriting, Embrace Home Loans offers an Approved to Move program. It lets you make an offer that’s as close to a cash offer as possible — which can make all the difference in a multiple-offer situation.

Why you should get preapproved

If you’re interested in purchasing a home in the near future, you should get preapproved. Before you can make an official purchase offer, your real estate agent and the seller will ask to see your preapproval letter. This letter proves you’ll be able to make the purchase should your offer be accepted.

Your preapproval letter will last anywhere from two to three months, depending on the lender. If you don’t make an offer on a home in that period of time, you’ll need to get another preapproval letter.

What you need for a preapproval

There are five major items you’ll need for mortgage preapproval, including:

1. Proof of Income. You’ll need to supply W-2 statements from the past two years, several recent pay stubs to prove your regular income, and proof of additional income. This might include alimony, bonuses, or an inheritance. You’ll need your two most recent tax returns to complete this requirement.
2. Good Credit. It’s difficult to get approved for a mortgage without a decent credit score. Most lenders reserve the lowest interest rates for those with a credit score of 740 or above. FHA loans accept credit scores starting at 580. The lower your score, the higher your interest rate will be, and you may have to supply a larger down payment.
3. Proof of Assets. You’ll need to show bank statements to prove you have the money to cover the down payment and closing costs. The amount of your down payment will depend on your loan. Under an FHA loan, you need only 3.5% of the cost of the home. With a Conventional loan, you’ll need to put down anywhere from 5% to 20%. Since your down payment can vary drastically, the prequalification process may give you an idea of how much to save up before you get preapproved.
4. Employment Verification. While pay stubs are helpful, they don’t prove you’re employed. Most lenders will be interested in calling your employer to verify you have a job and clarify how much you earn. If you’re self-employed, additional paperwork will be required to outline your income and business prospects. Embrace has a program specifically for self-employed borrowers.
5. Additional Documentation. You’ll need to submit some general documentation, including your driver’s license, Social Security card, and signature on a letter of approval to conduct a credit check.stability, value, and assets.

What to bring to get preapproved for a home loan

When you’re ready to get a preapproval, here are some things you’ll need to give to your lender.

1. Financial documents

• Two years of W-2s
• Your most recent pay stub (with your year-to-date income listed)
• Two years of tax returns, if you’re self-employed
• Any recent statements for your bank accounts or other assets
• Your license or state/federal-issued photo ID
• Your Social Security number

Typically, your lender will also ask for your approval to run a credit check, which will be recorded on your credit report. After you give them that approval, you should be good to go.

2. Wait for your preapproval letter

Now all you have to do is wait. Every lender will have a different turnaround time for issuing preapproval letters. It can take as little as a few days to a week or more.

3. Start house shopping

Once you have a preapproval letter in hand, it’s time to start shopping for homes. The average preapproval letter is good for 30 days, so you’ll want to start shopping as soon as possible.letters. Some lenders can do it in as little as a few days, while others may take a week or more.

The stages of your mortgage application

There are three basic stages in the mortgage application process: prequalification, preapproval, and the mortgage commitment.

Prequalification Stage

A mortgage professional will ask about your assets, income, and expenses. This will give you a general idea of the price range you can afford when searching for your home. A prequalification doesn’t bring you closer to securing a mortgage, but it can help you understand how much home you can afford.

Preapproval Stage

A lender will look at credit reports, employment history, and income. From there, you’ll explore the loan programs for which you qualify, the maximum amount you can borrow, and the interest rates you might be offered.

It’s important to note that during the preapproval process your loan officer is not approving your mortgage. A mortgage must go through the underwriting process to be fully approved.

Mortgage Commitment Stage

Finally, in the mortgage commitment stage, your lender will issue a letter approving you and the property you wish to purchase. You cannot reach this stage until you’ve selected a property.

Because you’ve already gone through preapproval, the documentation requirements for the mortgage commitment stage should be less stringent. Your loan officer will submit your application and approval to an underwriter. Then, the underwriter will return with either final approval, approval with conditions, suspended, or denied.

Under suspension, your underwriter will request more documentation before making a decision. Investing time in the preapproval process will help ensure this snag doesn’t come up during the home-buying process.

The bottom line on getting preapproved for a home loan

In today’s real estate market, getting a preapproval is basically a requirement. So use this post as your guide to the process. Armed with this knowledge, you should have a much better idea of what it takes to get preapproved for a home loan.

Need more help with the preapproval process? Contact the mortgage experts at Embrace Home Loans. Our team offers a fresh approach to buying and refinancing.

FAQs: Getting preapproved for a home loan

What does it mean to get preapproved for a home loan?

Getting preapproved means a lender has reviewed your finances — including income, credit score, and assets — to determine how much you can borrow. You’ll receive a preapproval letter showing sellers that you’re a qualified buyer.

How is a preapproval different from a prequalification?

Prequalification gives you an estimate of what you might afford based on self-reported information. Preapproval goes a step further, verifying your income, credit, and assets to give you a more accurate loan amount.

How long does a preapproval letter last?

Most preapproval letters are valid for 60 to 90 days. If you haven’t found a home within that time, you’ll need to update your financial information and request a new letter.

What documents do I need for mortgage preapproval?

You’ll typically need two years of W-2s, recent pay stubs, bank statements, and tax returns. Lenders also require identification and authorization to check your credit report.

Can I get preapproved with a low credit score?

Yes, but you may have fewer loan options or higher interest rates. FHA loans, for example, allow scores as low as 580 with a 3.5% down payment.

How long does it take to get preapproved?

Some lenders can issue a preapproval in just a few days, while others may take up to a week, depending on how quickly you provide the required documents.

Why should I get preapproved before house hunting?

Preapproval strengthens your offer and shows sellers that you’re a serious, qualified buyer. It can also speed up the mortgage process once you find a home you love.

What is pre-underwriting and how is it different from preapproval?

Pre-underwriting takes the process a step further by fully reviewing and verifying your financials before you make an offer — making you nearly as competitive as a cash buyer.