Benefits to Mortgage Pre-Approval & How to Get Approved

What is the difference between Pre-Qualification and Pre-Approval?

A pre-qualification letter is a preliminary estimate of the loan you will qualify for. Pre-qualification letters are often granted when a borrower has not yet gathered the necessary paperwork a pre-approval letter requires. The lender will use verbal information the borrower has on their credit, income and assets to give an assessment. This gives the borrower a starting point for the home buying process.

While similar to pre-qualification, a mortgage pre-approval letter is a written statement from a lender that gives the loan amount a borrower will qualify for. However, lenders require that documented income be submitted to grant pre-approval. This usually includes tax returns, bank statements, and W-2’s. Documentation allows the lender to verify income and this is why pre-approval letters are preferred in the real estate industry.

Why Should You Get Pre-Approved?

  • Understand how much of a home you can afford: The loan amount you are approved for will help you target your home search and will help you stay in the best price range for your budget.
  • You will speed up the process for obtaining a loan: Obtaining pre-approval requires a credit check and mortgage paperwork submission. Getting pre-approval early, will allow you to fix any errors on your credit report and get any additional paperwork you may need before the loan application is submitted to a lender, this will save you precious time.
  • A pre-approval letter will make you stand out in today’s competitive market: By getting pre-approved for your loan sellers will consider you a creditable buyer and will take your offer more seriously. Additionally, some sellers do not accept offers that do not submit a pre-approval letter.

What Do You Need to Obtain a Pre-Approval?

You should be prepared to give your lender the following documents:

  • Tax Returns
  • W-2’s
  • Bank Statements
  • Employment Information

Your lender will also need your social security number and permission to pull your credit report. By obtaining all of this information, your lender will be able to give you the most accurate pre-approval amount.

Common Misconceptions Homebuyers Have

  • Pre-approval is the same as a loan: A pre-approval letter does not guarantee that you will get a loan. A pre-approval letter is simply a preliminary determination that you are credit worthy at the time the letter was granted. Most lenders will require additional paperwork and satisfaction of other conditions before extending you a loan. Additionally, a change in your financial circumstances can cancel your pre-approval letter.
  • You Don’t Need to Research Lenders: Not all lenders offer the same programs or have the same lending requirements. Look for a lender that fits your specific needs. Many lenders offer specific programs such as HomeReady or focus on specific needs such as credit challenges and self-employed borrowers.
  • You are obligated to work with the same lender that granted the pre-approval letter: Most lenders would love to work with you if they gave you a pre-approval letter, but that doesn’t mean you are locked into working with them. By talking to different lenders, a borrower can better understand the market and will be able to find the best loan for their circumstances.

Don’t Forget!

You need to be honest with your lender about your finances and responsive to any requests for additional information. Being cooperative will make the process go much smoother and faster. If you mislead a lender you will damage your credibility and your shot at getting the mortgage.


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