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Mortgage Preapproval Process

Updated: Apr 24, 2022

What Is A Mortgage Preapproval?

Mortgage Preapproval is a document or letter from the lender stating how much they are willing to lend money to you to buy your home. Getting preapproval is the crucial step in buying a home. The preapproval is an indication that the lender is willing to move forward with the loan if the home meets the criteria expected or there is no drastic changes in your income or assets etc. The lender checks the borrower's creditworthiness based on income, assets, credit history, employment history etc. Preapproval doesn't guarantee that the loan will be given to borrower, a proper appraisal has to be done to be approved for mortgage.

Mortgage Pre approval Process
Mortgage Pre approval Process

What is Prequalification?

Prequalification is similar to preapproval where the lender gives an estimate of how much are they willing to lend to the borrower. The difference is preapproval is a conditional agreement between the lender and borrower given based on the creditworthiness of the borrower. In prequalification, it is just an estimate given based on the information given by the borrower without verifying the credit, income, employment or assets.

Preapproval process

Home Loan Application

The first step in the Preapproval process is filling out a Home Loan Applicant form. This is usually done by the lender online, phone or in person. This form takes around 10-20 minutes where you add in all the details of Personal information, Social Security number for the credit check, Financial Information, Loan information. Once the application is completed, the lender usually pulls the credit records from the Credit bureau agencies (Equifax, TransUnion, Experian).

You may also be able to get loan estimate without formal application submission depending on the mortgage providers.


The lender might need all the documentation supporting the loan applicant form information.

  • W2s of last two years

  • Pay stubs of last 30-60 days, some lenders prefer to call the Employer to verify the employment and salary information.

  • Statements from bank accounts, retirement accounts and other asset accounts at least for the past two months

  • Proof of any other income sources (bonuses, commissions, child support payments, alimony support, rental income)

  • Personal identification documents such as Driver's license

  • Tax returns of last two years

  • Profit and loss statement is required if self employed

  • Contact information of your landlord is needed if you are a first time home buyer.

Final Step

Once the application has been filled and the documents required submitted, application fee is paid, then the lender goes through the underwriting process and verify all the information in the documents. Most lenders use an automated system called AUS (Automated Underwriting System) to preapprove borrower for their home loan.

Common mistakes in Preapproval process

Any changes in the information given in the mortgage application after getting the preapproval may affect the eligibility, interest rate etc. Is is very important to maintain certain things after getting a preapproval. If there are any major changes due to unavoidable circumstances, let the lender know about it to get the guidance on how to proceed forward.

  • Avoid any major purchases or getting other loans until you buy your home to maintain the debt to income ratio.

  • Maintain the savings account and avoid any major withdrawal.

  • Keep track of large deposits on your account, you may be needed to provide documentation.

  • Don't change jobs as most of the lenders prefer the borrowers to have a minimum of 2 years of Employment history.

How long does Preapproval be valid?

Usually the preapproval lasts for about 90 days, but it may be 30 or 60 days depending on the lender. But, renewing the preapproval is a simple process where the lender has to go through the verification of income, employment, assets, credit etc to make sure nothing has major changes.

Why Credit score is important in Preapproval?

Most lenders prefer a credit score of 620 and above for conventional Loan, a credit score of 580 and above may be needed for FHA loan with 3.5% down payment, a credit score of 500-579 may be needed for FHA loan with 10% down payment, a credit score of 620 or above may be needed for VA loan, a credit score of 640 or above may be needed for USDA loan. The lowest interest rates are usually reserved for the borrowers with a credit score ofand above which varies depending on the lender.

How long does it take to get the Preapproval?

Preapproval takes few days or longer depending on the lender. The timeline varies. It also depends on how quick will you be able to submit the requested documents for verification.

What is the eligibility and documents needed if you are Self Employed?

Lenders usually look for the proof of income stability, financial strength of the business, future income potential of the business, location of your employment and the nature of your job. The documents needed are usually information of current clients, information regarding the insurance of your business, state or business licenses hold, Profit and Loss statements etc.

Is it okay to skip the Preapproval process if I am in a hurry to buy a home?

Skipping the preapproval process might be counter productive because it saves up a lot of time for the underwriter while officially applying for a mortgage. If the underwriter finds any discrepancy on the documents during the process, the whole process may stop and delay the home buying process. Because of this delay, other bidders might get a chance and you may lose the home.

Why is it important to get Preapproved?

It is important to get preapproved because it means the lender has verified all your assets, credit, income, employment etc. It also gives an estimate of how much money available to be borrowed. It also helps to narrow down the home search according to the budget. It makes you a more attractive buyer as the Preapproval letter lets the seller know that the buyer is not only eligible to certain amount of loan but also the credit and assets have also been verified.

It is advisable for the borrowers to continue to asses their financial situations even after getting preapproval as appraisal costs, Home owners insurance costs etc are usually not factored in preapproval process. The result of the preapproval process is that the borrower receives a Good Faith Estimate from the lender with details such as term of the loan, Interest rate, Loan type, closing costs etc.

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