Why Preapproval Matters
A mortgage preapproval letter is a statement from a lender that they are tentatively willing to lend you money up to a certain loan amount. It is not a guaranteed loan offer, but it can be a powerful tool when you are shopping for a home.
Sellers frequently require a preapproval letter before they will accept your offer on a house. Without one, you may lose out on a home you love to a buyer who has already taken this step.
Getting preapproved early in the process can also help you spot potential issues in time to correct them. For example, if your credit report contains errors or your debt-to-income ratio is too high, you can address these issues before you make an offer.
Sources: Consumer Financial Protection Bureau, PNC Bank
Prequalification vs. Preapproval
The terms 'prequalification' and 'preapproval' are used differently by different lenders. Some lenders base preapproval letters solely on information you provide, while others require documentation during the preapproval process. To avoid confusion, ask your lender exactly what their preapproval process entails.
In general, a prequalification is an informal review based on self-reported information. A preapproval, on the other hand, involves a formal review of your financial documentation and credit report.
Because a preapproval involves more thorough verification, real estate agents and home sellers are less likely to accept a prequalification as proof that you can secure a home loan.
| Aspect | Prequalification | Preapproval |
|---|---|---|
| Review type | Informal | Formal |
| Information used | You report details yourself | Lender verifies your documentation |
| Credit check | May be soft (no impact) | Typically hard (may lower score slightly) |
| Seller acceptance | Often not accepted as proof of financing | Frequently required by sellers |
Sources: Consumer Financial Protection Bureau, PNC Bank
Documents You'll Need
The exact documents you need will depend on your lender and your financial situation. However, you can expect to provide proof of identity, pay stubs for the last 30 days, W-2s from the last two years, bank and investment account statements, and a list of your debts.
If you are self-employed, you may need to provide profit and loss statements, 1099s, and tax returns from the last two years.
- Proof of identity (such as a driver's license)
- Pay stubs for the last 30 days
- W-2 forms from the last two years
- Bank and investment account statements
- List of debts (such as credit cards, student loans, car loans)
- For self-employed: profit and loss statements, 1099s, and tax returns
Sources: PNC Bank
How to Choose a Lender for Preapproval
You don't need to choose a lender just because you get preapproved, and preapproval letters don't provide enough information to decide which lender offers the best deal. It is generally recommended to get preapproved by multiple lenders so you can compare rates and terms. Shopping within a 45-day window can minimize the impact on your credit score, as multiple mortgage-related inquiries within that period are lumped into one inquiry on your credit report.
When choosing a lender for preapproval, consider their reputation, customer service, and how responsive they are. Ask what documentation they require and how long the preapproval process will take. Also ask whether they offer a preliminary pre-approval that uses a soft credit pull, which does not impact your credit score.
Sources: Consumer Financial Protection Bureau, PNC Bank, BiggerPockets
What Happens During the Preapproval Process
The preapproval process typically involves submitting a mortgage application with documentation of your income, assets, debts, and identity, and authorizing a hard credit check. The lender will review your credit score, income, employment history, debt-to-income ratio, assets, and savings to determine how much they are willing to lend you.
The process can take anywhere from a few days to a few weeks, depending on the lender and the complexity of your financial situation.
Lenders typically check your credit before issuing a preapproval letter, and the letter can have an expiration date. Most preapproval letters are valid for 60 to 90 days, though some lenders may issue letters with shorter validity periods.
- Complete a mortgage application with your personal and financial details.
- Authorize the lender to run a hard credit check.
- Submit documentation of your income, assets, debts, and identity, plus any additional documents the lender requests.
- Wait while the lender reviews your application and verifies your information.
- Receive a preapproval letter stating the amount you are tentatively approved to borrow and any conditions.
Sources: Consumer Financial Protection Bureau, PNC Bank, BiggerPockets
What to Do After You Get Preapproved
Once you have your preapproval letter, you can search for homes with confidence and make offers, knowing that sellers will take you seriously. Keep in mind that preapproval is not a loan guarantee, and final approval depends on full underwriting, including review of the property you're buying. It is possible to be denied for a mortgage after being preapproved.
Keep track of the expiration date on your preapproval letter and plan accordingly. If you don't find a home before it expires, you may need to renew it. Also, remember that you are not locked into working with the lender who preapproved you. After you make an offer, you can compare Loan Estimates from multiple lenders to find the best deal.
Sources: Consumer Financial Protection Bureau, PNC Bank, BiggerPockets
Frequently asked questions
Does preapproval hurt your credit score?
Yes, a traditional preapproval typically requires a hard pull of your credit, which can temporarily lower your score by several points. However, multiple mortgage-related credit inquiries within a 45-day window are lumped into one inquiry on your credit report, so shopping for rates won't hurt your credit more than a single inquiry. Some lenders offer a preliminary pre-approval that uses a soft credit pull and does not impact your credit score.
Sources: PNC BankHow long is a mortgage preapproval valid?
Most preapproval letters are valid for 60 to 90 days, though some may have a shorter validity period. You should keep track of the expiration date and plan accordingly, especially if you are actively house hunting.
Sources: Consumer Financial Protection Bureau, PNC Bank, BiggerPocketsCan you get preapproved with bad credit?
Lenders will check your credit as part of the preapproval process. While a low credit score may make it more difficult to get preapproved, lenders consider multiple factors such as income, employment history, debt-to-income ratio, assets, and savings. Some lenders may work with borrowers who have less-than-perfect credit, but you may face higher interest rates or additional requirements.
Sources: PNC BankShould you get preapproved before house hunting?
Yes, it is generally recommended to get preapproved before you start actively searching for a home. This helps you understand your budget, spot any credit or financial issues early, and gives you a competitive advantage when you make an offer.
Sources: Consumer Financial Protection Bureau, BiggerPocketsWhat if you get denied for preapproval?
If you are declined for preapproval, you still have options. You can ask the lender why you were denied and work to address the issues, such as improving your credit score or reducing your debt. You can also try a different lender, as each may have different requirements. Additionally, you may consider a preliminary pre-approval that uses a soft credit pull to get a sense of your eligibility without further impacting your credit score.
Sources: Consumer Financial Protection Bureau, PNC BankSources
- Get a preapproval letter — Consumer Financial Protection Bureau
- Mortgage Pre-Approval: What It Is & How It Works — PNC Bank
- How to Get a Preapproval Mortgage — BiggerPockets