A pre-approval tells you, and a seller, how much a lender is willing to consider lending based on a review of your finances. It is the best first step before you tour homes, and it is easier than most people expect when you gather your paperwork first.
Pre-qualification and pre-approval are not the same
Pre-qualification is usually a quick estimate based on what you tell the lender. Pre-approval goes further: the lender reviews your credit and verifies documents such as income and assets before issuing a letter. Sellers and agents generally give pre-approval letters more weight because more of the picture has been checked. Neither one is a final loan commitment, which comes only after underwriting of the specific home you choose.
Documents to gather
- Photo ID for every borrower.
- Income: recent pay stubs and two years of W-2s. If you are self-employed or earn commission, expect to provide tax returns and a profit and loss statement as well.
- Assets: recent bank, savings and retirement account statements, including the account holding your down payment.
- Debts and housing: a list of loans and credit cards, and your current rent or mortgage payment.
- Special programs: VA loans need proof of eligibility, such as a Certificate of Eligibility.
Lenders may ask for additional items depending on your situation, so treat this as a starting list rather than a guarantee of what will be required.
What happens during the review
- Talk through your goals. Price range, timeline, and how you plan to use the home.
- Credit review. The lender checks your credit with your permission.
- Income, asset and debt review. Your documents are compared against the guidelines for the loan programs that fit you.
- Letter and next steps. You receive a pre-approval letter and a plan for what to avoid until closing.
To make a Qualified Mortgage, a lender must consider and verify your income or assets and your monthly debts, which is why documents matter (Consumer Financial Protection Bureau).
Protect your approval until closing
- Avoid opening new credit accounts or making large purchases on credit.
- Keep working at your current job unless you talk to your loan officer first.
- Do not move large sums between accounts without being able to explain and document them.
Free tools worth using
The CFPB offers a credit report checklist, a spending tracker, a Loan Estimate explainer and a closing checklist on its buying a house pages. You can also find a HUD-approved counselor through the CFPB housing counselor search.
This article is general information for educational purposes. It is not financial, tax or legal advice, not an offer to lend or extend credit, and not a commitment to lend. Programs, limits and eligibility change and vary by state, property and borrower. Xpert Home Lending, Inc., NMLS #2179191. Equal Housing Lender.