How To Get a Mortgage Preapproval

Mortgage preapproval can be extremely important if you are buying a home. You should complete the mortgage preapproval process before you get started looking at properties to find out how much you can borrow and what loan terms your lender will likely offer.

Knowing these details helps you avoid wasting time looking at homes you can't afford. Your lender can also provide a mortgage prequalification or preapproval letter, which most sellers require to accept an offer. 

This guide will explain how to get prequalified or preapproved for a mortgage and what to expect during the process so you can move forward on your home-buying journey. 
 

What is Mortgage Preapproval?

Mortgage preapproval is a process to determine if getting approved for a mortgage loan is possible for you at the time. It also helps you get an idea of what loan terms a lender will offer you. That includes the maximum loan amount you can borrow to buy a home and the approximate interest rate you'll pay.

During the preapproval process, you will provide your financial details and go through a relatively thorough review of your finances. Lenders look at your credit, income, assets, and other relevant financial details. The lender's goal during this time is to see if you can comfortably afford a loan for buying a home.  

What is Mortgage Prequalification?

Mortgage pre-qualification is similar to mortgage preapproval but much simpler. When you get prequalified, you only provide some basic information to the lender to find out how much you can likely borrow when you want a mortgage loan to buy a home.

When exploring how to get prequalified for a mortgage, you'll find that you're asked about your income, down payment amount, and any other debts you’re currently paying. Based on your information and a credit check, you can get a good idea of how much money you could get approved for. Although a mortgage prequalification is a great start, eventually you will still need to verify all of your financial details later in the process. 

Freedom Mortgage makes prequalification very fast and easy. In fact, you can complete the entire process over the phone or online, so you'll be ready to start shopping for homes in your price range right away. 

Benefits of Home Loan Preapproval

If you are trying to decide if and when to get preapproved for a mortgage, you should know there are many benefits. Here are some of the biggest advantages of a home loan preapproval: 

• You can estimate how much home you can afford: By finding out how much lenders will allow you to borrow and what your mortgage will cost, you can get a clear picture of your comfortable and realistic home-buying budget. 
• Many real estate agents require it: Real estate agents don't want to spend time showing you homes without knowing you can afford to buy them, so they often require a prequalification or preapproval. Sellers' agents may also require you to provide a preapproval letter before they will show you a home. They often don't want unqualified buyers coming through. 
• It makes you a stronger buyer: When you make an offer, you can submit your preapproval letter to show the sellers you’re likely to be approved for the  financing needed to purchase the home. This makes them more likely to accept your offer and can save everyone a lot of time and effort.  
• It can save time in the buying process: Getting approved for a mortgage takes time. If you get preapproved, you take many of the required steps in advance of finding a home. This allows you to close on your loan and buy your home more quickly, which can sometimes be important to you and to the seller. 

Because of these benefits, many people find going through the mortgage prequalification or preapproval process worth the effort. 

Mortgage Preapproval vs. Approval

Mortgage preapproval is not the same thing as final approval. As the Consumer Financial Protection Bureau explains, preapproval means the lender is tentatively willing to give you a home loan. It is not a guaranteed loan offer.

Getting fully approved for a mortgage is possible only when you have an accepted offer on a house. At this phase, lenders will thoroughly review your finances (underwrite) to make sure nothing has changed from when you got preapproved. Lenders also look at the specifics of the house to make sure it meets the requirements to guarantee the loan and serve as collateral.

Preapproval should turn into final approval as long as your finances haven't gotten worse and the home meets the specific loan's criteria (such as passing all required VA inspections), including appraising with a high enough value to guarantee the loan and not having major issues (such as liens on the property or unrepaired defects). 

Determining how to get approved for a mortgage is much easier after you have been preapproved, since you've done the hard work up front during the mortgage preapproval process. 

How to Get Preapproved for a Mortgage

Understanding how to get preapproved for a mortgage is very similar to understanding how to qualify for a mortgage. In both cases, the goal of the mortgage preapproval process is to demonstrate your financial credentials and show that you are a qualified borrower who can comfortably afford your mortgage payment and your new home. 

Here are the steps that you can expect during the mortgage preapproval process. 

1. Find a Mortgage Lender

Finding the right mortgage lender is key to a successful prequalification/preapproval process and ultimately is essential to getting approved for a mortgage. You should look for a lender that offers:

• A wide variety of home loans. This may include conventional loans, VA loans, FHA Loans, and potentially USDA Loans (if you live in a rural area). This will give you more options for  the home loan that best fits your budget, financial situation, and goals.
• Affordable rates and terms. Your lender should offer competitive rates and a choice of repayment timelines, such as 15 or 30 years, as well as fixed and adjustable rate mortgages, so you can find the right loan that fits your budget.
• A solid reputation for customer service. You will be making one of the largest financial commitments of your life, and you want to know that your lender is going to work in your best interest when choosing a mortgage loan. Additionally, when paying your mortgage back over time, you want to make sure that your lender provides the support you need.

Freedom Mortgage offers multiple loan types to fit every financial situation and has been helping millions of Americans since 1990, so rest assured that Freedom Mortgage is a trusted partner that will help you all the way through the mortgage loan qualification process.

2. Gather the Required Financial Documentation

The mortgage preapproval qualification process requires you to provide many documents so your lender can learn about your finances. Some of the financial information you will likely be asked to provide includes:

• Pay stubs
• Tax returns
• Bank account statements
• Investment account statements
• Financial information about other debts
• Details about any other properties you own

Your lender will also check your credit score. 

3. Check Your Credit and Debt-to-Income Ratio

When you're learning about how to get preapproved for a mortgage, you need to understand a few key things, including: 

• What credit score you need to buy a home 
• The required debt-to-income ratio (DTI) for mortgages

Lenders will get a copy of your credit report, and you may also wish to do the same so you can make sure there are no mistakes. You can find both your credit report and often your credit score for free online. 

Your credit score is calculated by major credit reporting agencies, and, while lender requirements vary based on loan type, you usually need a minimum credit score between 580 and 620, depending on whether you're getting a conventional loan or one backed by the government. Freedom Mortgage allows for some loans to qualify with a minimum 550 credit score.

Your debt-to-income ratio can be a little harder to calculate. It is the ratio of the amount you owe, relative to your earnings and income. There are both front-end and back-end debt-to-income ratios. The front-end ratio takes the cost of your new home relative to your income (including principal, interest, taxes and insurance) into account, and the back-end ratio takes into account all your debt including your new housing costs as well as things like car loans and credit cards. 

If you check your credit and calculate your DTI, you can make sure you meet the lender's requirements before spending time applying for preapproval. 

4. Apply for Preapproval

Next, you will formally apply for preapproval. You may be able to do this online, in person, or via phone with help from a mortgage loan provider. This usually involves filling out a simple application with your details, as well as providing the financial documents mentioned above. 

Your lender may also ask you for some additional details during the process of getting home loan preapproval. For example, you may need to provide more information about your job or where your down payment is coming from, depending on what type of mortgage loan you are interested in, or other areas of concern a lender sees when deciding whether to preapprove you.

5. Get Your Preapproval Letter

After a thorough review of your finances, your lender will hopefully preapprove you and you will get your letter of preapproval. This will specify the amount you can borrow, the interest rate, how long your rate is locked in (guaranteed to stay the same), and your loan terms. 

You do not have to borrow the full amount you are prequalified or preapproved for, but you can choose to do so depending on your budget and home buying goals.

Once you have your preapproval letter, you can start making offers on homes. If your offer is accepted, you'll go through the formal process of getting approved for a mortgage and hopefully get that final approval and make the home your own.

Mortgage Preapproval FAQs

If you still want to know more about how to get a mortgage preapproval, here are the answers to some frequently asked questions many people have about the mortgage preapproval and prequalification process. 

How Long Does Preapproval Take?

The timeline for mortgage preapproval can vary depending on the lender and depending on the complexity of your financial situation. It could take anywhere from a few hours to several weeks. You'll also want to take your time in the preapproval process to make sure you find the right trusted lender offering reasonable interest rates and favorable terms. 

When Should I Get Preapproved for a Mortgage?

You may want to get preapproved for a mortgage early in the home-buying process, before you start looking for properties. This will provide insight into how much you can afford and what properties to look at. If you don't want to go through the full preapproval process but still want an idea of how much home you can afford, or what your loan will look like, you should consider the prequalification process instead. 

Does Preapproval Affect My Credit Scores?

Preapproval can have a minor impact on your credit score if the lender does a hard inquiry, as too many inquiries are a red flag for credit reporting agencies. Generally, however, the impact on your score should be small, and your score may ultimately end up quickly increasing once you close on your mortgage.  Having an affordable mix of different kinds of debt is beneficial for your credit and raises your score. 

If you're shopping around and get several mortgage quotes during a 45-day period, these are counted as one inquiry for the scoring formula, so you don't need to worry that comparing interest rates will impact your credit. 

Will I Get Approved for a Mortgage?

Whether you get approved for a mortgage or not depends on many factors, including your income, your debt levels, and the size of your loan. Your lender considers your financial details in both determining if you can be approved and how low of an interest rate they can offer you. 

Government-backed options such as FHA, VA, and USDA loans may be easier to get approved for, so be sure to talk with your lender about all the choices available to you.

How Long Does Mortgage Preapproval Last?

Mortgage preapproval typically lasts between 60 and 90 days, although it can vary by lender. Ask your mortgage lender how long your approval is good for when you get your preapproval offer. This is typically stated on your letter of preapproval or prequalification.

Final Thoughts on Mortgage Preapproval 

Both mortgage preapproval and mortgage prequalification can make the home-buying process easier. Both provide insights into your borrowing options so you can make choices on what properties fit within your budget and what type of homes to look at. 

Prequalification can be both faster and easier, though, so if you are interested in a simple way to get started in your home buying journey, contact Freedom Mortgage to start the prequalification process today.