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Should You Get Pre-Approved for a Mortgage?

In this topic, we cover:

  • Why pre-approval can be an important step in a smooth home purchase.
  • How to get pre-approved.
  • The differences between pre-approval and pre-qualification.


Credit Report with Score

There are a variety of benefits to seeking mortgage pre-approval. First and foremost, it allows you to make a firm determination regarding what you can likely afford. Once you know how much money you have to spend, you can narrow your options, move quickly when you find an acceptable home, and make a more attractive pre-approved purchase offer.

Pre-approval also provides you with a great opportunity to learn the pros and cons of each mortgage option. Buying a home can be a harried experience, so rather than rushing through the options at the last minute, you'll have the time to make an informed choice that's right for you.

Finally, pre-approval eliminates some of the stress involved with the home buying process. You don't have to worry about finding your dream home, only to watch the funding fall through.

How it Works

The process is fairly straightforward. Lenders will first take a look at your credit score. Borrowers with higher scores qualify for the best rates while those with low scores may not qualify for a conventional mortgage. It's important to remember that while your credit score is extremely important, it's not the only consideration - many people with average credit get mortgages every day.

Next, the lender will review your income, debt and assets. You'll need to provide W2 tax forms (or complete tax returns if self-employed), paycheck stubs and other documented proof of income. Be prepared for the lender to verify that all of the information is current, sometimes with a phone call. You'll also need to come armed with bank statements proving you have the ability to cover the down payment, closing costs involved with the sale, and any "reserve" funds required by the lender.

Finally, you'll need to bring basic identification such as a driver's license and a Social Security card.

Once your documentation has been reviewed, you may be pre-approved for a certain maximum loan. Pre-approvals aren't indefinite - expect them to be valid for two or three months, depending on your lender. 

Pre-Approvals and Your Credit Score

Getting pre-approved for a mortgage does involve a "hard" credit report inquiry, so it's best to start the process shortly before you start shopping for a home. A single credit inquiry is unlikely to harm your score, but you may want to refrain from applying for new loans or lines of credit for several months before starting the pre-approval process. Multiple pre-approvals over several months may impact your credit score.

If you're not quite ready to start shopping for a home, an alternative to pre-approval is pre-qualification. Mortgage pre-qualification is an informal process in which you share your income, debts and other expenses with a loan officer. He or she can then give you a good idea of the mortgage you would likely qualify for - which can be helpful information when you start the home buying process.