As its name implies, a mortgage preapproval is a lender’s way of telling you that it has prospectively approved you for a home loan up to a certain estimated amount. Having preapproval can be a big boon in a competitive housing market. It signals to sellers and real estate professionals that you’re serious about buying a home — and that a lender is, at least provisionally, willing to back you up.
But in the world of home shopping, there’s a lot of lingo to learn — for starters, there’s a difference between preapproval and prequalification. Below, find all the details you need to stay in the know and be ready to go when you find your dream house.
Key Points
• Mortgage preapproval is a lender’s estimate of your loan eligibility, based on verified financial details.
• Prequalification offers a less rigorous financial assessment than preapproval.
• A lender examines credit score, income, and your debt-to-income ratio before preapproval.
• Documentation and a hard credit check are required for preapproval.
• A preapproval letter is valid for up to 60 or 90 days, depending on the lender.
What Is a Mortgage Preapproval Letter?
While the mortgage preapproval itself is the process by which a prospective lender estimates how much of a home loan you might be approved for — which we’ll get into in more detail below — the mortgage preapproval letter is the result of that process, and potentially an important aid in acquiring the keys to your new home.
A mortgage preapproval letter is the document that the lender offers you showing that you’ve been preapproved for a home loan up to a certain amount. Getting this letter can help you understand which homes are within your budget while you’re shopping — and also serve as a proof point for sellers that you’re not “just looking.”
Your preapproval letter will vary depending on the lender you choose, but will include the lender’s name and the amount up to which you’ve been preapproved. It’s also important to bear in mind that a preapproval is only valid for a certain period — usually up to 60 or 90 days after the mortgage preapproval process. That window gives you time to shop around, but not so much time that you can dawdle.
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Why Would You Want a Mortgage Preapproval?
Seeking out preapproval for a mortgage is not as simple as entering your name, email address and Social Security number into an online application. (If you’re prompted to enter a few numbers and promised a response in just seconds or minutes, that’s a prequalification, not a preapproval — and it doesn’t carry the weight a preapproval does.)
Although a preapproval does not guarantee a loan, it is a stronger statement than a prequalification. That’s because, to be preapproved, prospective borrowers must have some of their basic financial details, like income and credit score, verified. A preapproval involves a hard credit check rather than a soft one, which means it’s a better vote of confidence from the lender.
Let’s take a look at which specific factors play into your being preapproved (or not).
Mortgage Preapproval Factors
The factors your home loan lender will consider to preapprove you for a mortgage are similar to the ones they’ll look at to actually approve you for the loan. The difference is how in-depth the verification process goes.
Factors include:
• Credit score and history (as verified by a hard credit pull)
• Income and employment stability (as verified by recent W-2s, paystubs, and tax returns)
Lenders may also consider factors such as your debt-to-income (DTI) ratio, which displays the money you owe in loan payments each month as a percentage of your monthly income, helping lenders understand your ability to make payments on whatever type of mortgage loan you may choose.
Is a Mortgage Preapproval the Same as Prequalification?
No. A mortgage preapproval holds more weight than a prequalification, precisely because it requires a hard credit pull and some level of verification (whereas a prequalification may be based on a soft credit check and is therefore a weaker estimate of your actual ability to afford to buy your first home or afford your jumbo mortgage, or anything in between.
Mortgage Prequalification vs. Preapproval
Getting prequalified can still be a helpful stop on the homebuying journey — especially if you’re still early on the path. It can be especially useful for those who qualify as a first-time homebuyer and haven’t taken out a home loan before or recently.
A prequalification letter can help you understand a very general estimate of how much of a mortgage loan you might qualify for, which can help you determine what types of homes might be within your budget. It’s a good way of seeing how your mortgage payments would fit in with your overall cost of living. However, once you’re getting serious about shopping, a preapproval letter will make it easier to move forward with speed and flexibility.
What Do You Need to Get a Mortgage Preapproval?
Every lender’s process for getting preapproved for a mortgage is a little different, but usually you will need to provide your basic demographic information (such as your name, current address, and Social Security number) as well as providing documentation to the lender to verify your income and other stats, as described above.
How to Get Preapproved for a Mortgage
The good news is, these days, plenty of lenders make it not just possible, but easy to complete all the steps for your preapproval online. You may be able to upload the necessary documentation into their web portal — or, if you’d rather work with hard copies, fax, mail, or bring them into a brick-and-mortar branch (unless you’re working with an online-only lender).
How Long Does It Take to Get Preapproved?
While a mortgage prequalification can take just a few seconds or minutes, a mortgage preapproval can take a bit longer — after all, the lender has to actually verify the information you’ve offered. Again, each lender works a little differently, but in most cases, if preapproved, you should get your mortgage preapproval letter within 10 business days of applying.
What Happens After Mortgage Preapproval?
Once your mortgage preapproval goes through, you’ll have your mortgage preapproval letter in hand and be able to shop with confidence. Your preapproval letter can also be used to help you stick out from the crowd in a competitive market: You’ll already have a leg up on shoppers who haven’t gone through the preapproval process, who will be starting from scratch (whereas your mortgage application will already be partially ready to go).
Does the Preapproval Expire?
The point of a mortgage preapproval letter is to offer sellers and real estate agents information about your financial standing — and your financial standing can actually change pretty quickly.
That’s why mortgage preapproval letters usually expire within 60 or 90 days. This gives you a window for house shopping, but not indefinite time — so it’s a good idea to save your preapproval application for the moment when you’re really ready to go through with a purchase if you find the right home.
How Far in Advance Should You Get Preapproved for a Mortgage?
Since a preapproval does have an expiration date, it’s best not to start the preapproval process for a mortgage too far in advance. At the same time, if you’re already seriously home-shopping, not having a preapproval letter could hinder you if you find a home you want to move forward with.
Thus, the best time to get preapproved is when you feel that, if you found the right house tomorrow, you’d be ready to go ahead and make an offer. You should also be ready to spend the next 60 to 90 days, depending on your preapproval window, shopping with some level of seriousness. Another tip: If you think you might need help making a down payment, you should look into down payment assistance programs well before you seek preapproval.
Does Getting Preapproved Commit You to Anything?
A preapproval does not constitute a commitment — on either side of the table. So while you’re not committed to going forward with the mortgage, neither is your lender formally committed to loaning you the money.
Does a Preapproval Hurt Your Credit Score?
A mortgage preapproval does usually involve a hard credit pull, which can temporarily ding your score by a few points. However, in most cases, this type of credit score impact falls off relatively quickly and shouldn’t drop your score too much.
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Does Preapproval Mean You Get the Mortgage?
While a mortgage preapproval is definitely a vote of confidence from your lender, it doesn’t automatically mean you’ll get the mortgage. When you’re ready to formally apply, you’ll go through a more in-depth underwriting process that may require further verification of the factors used to determine your eligibility — so while a preapproval letter is a great estimate, it’s not a guarantee.
The Takeaway
A mortgage preapproval letter can help you show sellers that you’re motivated and ready to go — as well as giving you some pretty solid insight into how much house you can truly afford.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
Does preapproval mean you are approved for a house?
A mortgage preapproval letter is just that — a preapproval. It is not the same as having an approved loan offer. It will, however, list an estimated figure that shows how much a lender may be willing to qualify you for, which is helpful as you shop for a home.
Does preapproval guarantee a loan?
A mortgage preapproval letter is a giant step toward getting approved for a loan, but it is not a guarantee. If your financial standing changes between the time you get preapproved and the time you put in your formal application, you may not be qualified for the same loan amount — or, in extreme cases, you may not qualify at all.
Can you be denied a loan after preapproval?
Yes, it’s possible to be denied a home loan, even after going through the preapproval process with that same lender. That’s because your personal financial situation or market conditions might change substantially between the time you got preapproved and the time you’re applying for the loan itself — though generally, if nothing catastrophic happens (like a job loss or serious credit score dip), this is an unlikely situation.
How much house can I afford if I make $70,000 a year?
Affording a house is about more than just how much money you make each year. It also matters how much debt you currently carry, what interest rates you qualify for, and how much you can set aside for a down payment. That said, one rule of thumb is that the cost of your home should not exceed three times your income. On a salary of $70,000, that would be $210,000. This is only one way to estimate your budget, however, and it assumes that you don’t have a lot of other debts.
Can I afford a $300K house on a $60K salary?
Your ability to afford a certain house depends on more than your salary alone. However, as a general rule, if you earn $60K a year, you may be able to afford to spend around $180,000 on a house, maybe a bit more if you have little or no other debts or can make a large down payment. However, depending on where you want to live, current interest rates, and how much debt you’re carrying, that figure could change significantly.
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