Exploring loan choices
A preapproval letter is a statement from a lender that they are tentatively willing to lend money to you, up to a certain loan amount.
A preapproval letter is based on assumptions and it is not a guaranteed loan offer. But, it lets the seller know that you are likely to be able to get financing. Sellers frequently require a preapproval letter before accepting your offer on a house.
What to do now
Decide when to get a preapproval letter
Lenders typically check your credit before issuing a preapproval letter, and the letter can have an expiration date on it (typically 30 to 60 days). For these reasons, many people wait to get a preapproval letter until they are ready to begin shopping seriously for a home. However, getting preapproved early in the process can be a good way to spot potential issues in time to correct them.
Find out what the lender’s preapproval process is
Every lender is different. Find out what you need to do and what documentation is requested.
Request a preapproval
Follow up with the lender and provide the necessary information.
Ask questions
Ask the lender what assumptions they made to issue the preapproval. Is there anything about your situation that could lead to your loan being denied later, or that could increase your interest rate or loan costs?
What to know
Different lenders use the terms “prequalification” and “preapproval” differently
Some lenders offer only a “prequalification.” Other lenders offer only a “preapproval.” For simplicity, we use the word “preapproval.” Find more details about prequalification and preapproval.
Different lenders may request different levels of information and documentation
Some lenders base preapproval letters solely on the information you provide. Other lenders dig into the details with you now to make certain you have all the documentation you need and prevent delays and surprises later. Ask questions. All lenders require documentation at some point if you decide to apply for a loan. It’s better to know now that you need an additional document (which could take some time to get) than when you’re about to close.
Getting a preapproval letter isn't the same thing as applying for a loan
A preapproval letter just says that a lender is willing to lend to you – pending further confirmation of details. A preapproval helps you shop for a home, because it lets the seller know you are a serious buyer.
There's no need to choose a lender just yet
Getting preapproved is important because it helps you shop for a home. But your preapproval letters don’t give you enough information to make a decision about which lender offers the best deal. Getting a preapproval doesn’t commit you to using that lender for your loan. Wait to decide on a lender until you've made an offer on a house and received official Loan Estimates from each of your potential lenders.
How to avoid pitfalls
You’re the only one who can decide how much you can afford to spend on a home
Lenders preapprove you by looking at your income, assets, debts, and credit record. But your financial life is much more complicated than that. Only you can decide how much you’re comfortable paying upfront and each month — which means only you can decide how much to spend on a home.
- If you were preapproved for more than the home price budget you set for yourself, you can use the preapproval letter to shop for homes without changing your target home price. If you’re happy with the amount you planned to spend, stick with your original budget.
- If you were preapproved for less than you were planning to spend on a home, talk with the lender. Ask if there was a particular factor (for example, your income) that limited the preapproval amount. You might need to adjust your home price expectations.
- Be upfront with your real estate agent. If you don’t want to see homes above a certain price, say so. Limiting your search is a good way to avoid falling in love with a home that costs more than you want to spend.
If you get declined for your preapproval, you still have options
- Find out why you were declined, so you can figure out what to do to improve your chances of getting a loan in the future.
- Ask the lender to explain why you were declined. Was your credit score too low? Was there specific negative information on your credit report?
- Ask to see a copy of the credit score the lender used. If the lender used your credit score to deny your preapproval request, the lender must send you a notice with the credit score they used to make the decision and instructions on how to get a free copy of your credit report.
- If there are errors on your credit report, get them corrected.
- If you need help improving your credit, contact a HUD-approved housing counseling agency. You can find a counselor online or by calling 1-800-569-4287.
FAQs
Get a preapproval letter
- Decide when to get a preapproval letter. ...
- Find out what the lender's preapproval process is. ...
- Request a preapproval. ...
- Ask questions. ...
- Different lenders use the terms “prequalification” and “preapproval” differently. ...
- Different lenders may request different levels of information and documentation.
Mortgage preapproval is free with many lenders. However, some lenders charge an application fee which you may have to pay upfront regardless of whether you're approved.
Can I get pre-approved for a mortgage online? ›
A mortgage preapproval helps you determine how much you can spend on a home, based on your finances and lender guidelines. Many lenders offer online preapproval, and in many cases you can be approved within a day.
How fast can I get a pre-approval letter? ›
On average, it takes 7-10 days to get a pre-approval, although in some cases it may take less time. To speed up the home loan pre-approval time, you should gather your financial documents that the lender will require (e.g., W2s, proof of income, tax returns, etc.).
What is the difference between a prequalification letter and a preapproval letter? ›
A mortgage prequalification is a good way to estimate how much home you can afford. A preapproval takes it one step further and verifies the financial information you submit to calculate a more accurate amount. Getting approved early in your home search is a great way to know what you can afford.
What credit score is needed to buy a house? ›
For a conventional mortgage in California, you typically need a minimum score of at least 600. If you qualify for certain government-backed loans, however, you may be able to buy a home with a score as low as 500.
Is it better to be prequalified or preapproved? ›
Prequalification tends to refer to less rigorous assessments, while a preapproval can require you to share more personal and financial information with a creditor. As a result, an offer based on a prequalification may be less accurate or certain than an offer based on a preapproval.
Can you get denied after pre-approval letter? ›
After all, they spent all that time painstakingly going through your credit score, finances, debts, and assets. Even though pre-approval is a comprehensive, essential first step in buying, it isn't a done deal. A mortgage can be denied after pre-approval, and is one of the main reasons that property sales fall through.
Does a pre-approval hurt your credit? ›
Getting pre-approved does not hurt your credit score.
What is the fastest way to get pre approved for a mortgage? ›
The fastest way to get a mortgage pre-approval is to use a self-serve mortgage approval company. Self-serve mortgage applications securely verify, underwrite, and approve your mortgage in real time, 24/7. Homebuyer.com gives home buyers self-serve mortgage approvals in about five minutes.
How Accurate Is Bank Of America Credit Card Preapproval? While it's not technically guaranteed that you'll be approved for a credit card just because you've cleared the preapproval hurdle, it is a pretty strong indicator.
Can you make an offer on a house without pre-approval? ›
Just like you don't need to have mortgage preapproval to look at a house, you technically don't need preapproval to make an offer either. However, you may find that you'll have a hard time getting an offer accepted without your preapproval.
What is required for pre-approval? ›
Pre-approval requires proof of employment, assets, income tax returns, and a qualifying credit score. Mortgage pre-approval letters are typically valid for 60 to 90 days. Upon pre-approval, the lender will provide the maximum loan amount, which helps set a price range for the home shopper.
Is pre-approval a hard pull? ›
Key takeaways. Getting preapproved for a mortgage requires a hard credit pull, which can lower your credit score. However, the drop in score is fairly minimal and only temporary. For most people, the benefits of preapproval outweigh this drawback.
Can I buy a house with a pre-approval letter? ›
Mortgage pre-approvals are valid for a specific amount of time, typically 30 to 90 days. During this time, you can choose to formally apply for the mortgage, or not. Pre-approvals are not binding loan agreements.
Do you need documents for pre-approval? ›
To get a pre-approval, the borrower must provide the lender with several documents, including proof of income, proof of employment, assets, debts, and other information that the lender will use to determine if the borrower is creditworthy. The lender will also look at the borrower's credit score.
How to get a pre-approval letter for a car? ›
Getting pre-approval for a car loan can be done by getting the required documents, checking your credit score, and applying for loan offers. You can get preapproved for auto loans from a variety of banks, credit unions, and online lenders.
Can a seller ask for a pre-approval letter? ›
A home seller often asks for a mortgage pre-approval letter before negotiating with a buyer. Pre-approval requires proof of employment, assets, income tax returns, and a qualifying credit score. Mortgage pre-approval letters are typically valid for 60 to 90 days.
How do I get a preapproval letter for bad credit? ›
Yes, you can get pre-approved for a mortgage with bad credit. It's just not easy. Lenders look at the whole picture, not just the credit report. Having a lot of money in reserve, a good income, a steady job and small amount of debt can overcome the bad FICO report you got for doing the opposite of all those things.
