How to Get Pre-Approved for a Home Loan

Many homebuyers think there’s no difference between mortgage prequalification and preapproval. But if you don’t know the difference, you could miss out on your opportunity to find a mortgage and buy a home.

Prequalification is usually based on unverified information you share with a lender, while prequalification is a lengthier process that involves a deep dive into your finances and credit. Here’s what you need to know.

What does it mean to be preapproved for a mortgage?

Preapproval is the process of having your loan application approved in advance of buying a home. To get preapproved, you can send documents to your lender, deliver them in person or fill out online forms. 

But not all preapprovals are equal, so you must ask your lender which type of preapproval they’re completing.

Is your loan officer collecting all of your documentation and then sending it to their underwriter for analysis and a formal bank loan approval? If so, you’re actually applying for preapproval. Is your loan officer collecting and analyzing all of your documentation, then telling you to start shopping for homes in a certain price range? If so, you’ve only started the preapproval process, and you’ll eventually have to provide more information that needs to be verified.

What documents are required for mortgage preapproval?

In order to have a loan underwriter preapprove your loan application, you usually need to provide the following list of documents and information for their review:

• Personal information: Birth date, social security number, marital status and number of children and ages. 
• Residence history: If you’re a renter, a record of your rent payment for the prior two years or more is needed. If you own, all mortgage, insurance and tax figures are required for the prior two years or more.
• Employment and income: If you receive commission or bonuses, you need to show two years of figures. Full tax returns for two years are always required, including business taxes if you’re a business owner.
• Asset balances: A minimum of two months worth of statements on all checking, savings, investment and retirement accounts is required. If you move money among accounts, you must provide information on all accounts, even if you’re only using one for the down payment. If you plan to use gift funds toward your down payment, lenders must see documentation of such transactions, too.
• Debts: Debt payments and the balances for your credit cards, loans, alimony and child support. The lender will use this information to calculate your debt-to-income ratio (DTI).

After you get into contract to buy a specific home, you’ll need to provide additional property information, since loans are based on both borrower and property profiles. Your loan officer’s underwriter will need to review the home’s title report, appraisal, and any other relevant documents to finalize the loan.

Is preapproval the same as prequalification?

Preapproval and prequalification are terms that some lenders use interchangeably, but they’re not the same thing.

The main difference between the two is that prequalification does not mean you’ve secured a loan. Instead, it means the lender has reviewed details such as your estimated purchase price, down payment, income, debts, and credit score, without verifying the information. Based on the details you share with the lender, you’ll receive a quote.

A prequalification is a useful starting point in shopping for a home, since it can help you get a sense of what you qualify for, it’s far from a preapproval. If you don’t like your prequalification offer, you can take time to address problems before moving forward. For example, you may want to schedule an appointment with an NFCC-certified credit counselor to find out how you can improve your credit scores.