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What is a pre-approval and why do you need it?

By Trulia | Published: Oct 14, 2009 | 57 Comments

When shopping for a home, you're going to be asked at some point whether you've been "pre-approved" or whether you have mortgage "pre-approval." You're going to want to answer "yes" to these questions -- buyers who can are in a much better position to purchase a home. Why? Read on to find out.

  1. What is pre-approval?

    In real estate lingo, to say you have been "pre-approved" or that you have mortgage "pre-approval" means you have a commitment in writing from a lender to lend you a specific amount to buy a home under certain conditions (e.g., length of the loan and interest rate). A pre-approval holds more weight than a loan pre-qualification, which is an estimate of how much you may be able to borrow.

  2. Why is it important?

    It's important to have pre-approval for several reasons: It will let you know how much you can spend on a home and the size of mortgage you'll be able to obtain, it will give you an advantage when it comes time to bid on a property, and it will speed up the process when you find a home you want to buy.

    When you have a pre-approval letter for a loan, you'll know exactly how much you can borrow, and possibly the length of the loan (15 years, 30 years, etc.) and your interest rate. This will give you an idea of how much you can spend on a home and what your monthly payments will be like should you purchase the property.

    Buyers prefer sellers who have their financing in place. They don't want to choose a buyer who seems to be a qualified buyer, but can't come up with the funds to buy the house.

    If you are pre-approved with a reputable lender, you may be able to win a bid over another buyer should multiple buyers be interested in a particular home -- even if the offers from the other buyers are higher.

    When it comes time to place an offer on a home, having a pre-approval letter will speed up the process. That's because you won't have to wait to hear from a lender as to whether or not you've been approved.

  3. How do you get it?

    You'll want to talk to a few lenders to search out loans that will best suit you and your financial situation. The lenders will require certain information, including: your income, your employment situation, how long you've been employed, and any debts you may have -- e.g., student loans, car loans and credit card debt -- and the source of your down payment.

    You may be asked to show your tax returns, bank statements and W2 forms. The lender will use this information to determine the maximum loan you can qualify for and your monthly mortgage payment.

    The lenders will also check your credit report and whether you have funds for a down payment and closing costs.

    But, even when you do get pre-approved, remember that there are some caveats: Pre-approval letters can be time-sensitive and are subject to an appraisal on the home you're purchasing, so while a pre-approval gives you a firm idea of how much you may be able to borrow, it's still not a concrete guarantee that you'll get the loan.

Comments

By Cindy,  Thu Oct 29 2009, 23:29
well if you go to several lenders won't that lower your credit score?
By Carl Ashton,  Sat Dec 19 2009, 10:55
Please do not run and shop for a loan each pull on your credit report cost you one point, I can assist you in getting these removed if you already have but this process takes valuable time, I would hate for you to come to me and perfectly qualify and have a 619 credit score on 2 reports and have to wait 30 days for these to be removed so we could fund your loan.

Same thing with cars and credit cards get your scores from a credit source like myfico.com and then correct errors first, 620 plus will be ok for a car loan, the ask for the manufacturers financing if at all possible on report and if you can qualify the secondary lenders should accept the first report so you dont have to pull mutiples.

I just had a client that cannot buy because of this please dont let it happen to you.

We look for these Items

A 620 + Beacon Score
2 Years Verifiable employment
29% Income ratio
41% Debt Ratio
2 Years tax returns that correspond to the income
Sales Contract.
This loan I can close most buyers with 100% USDA or FHA 3.5% Financing in Suburban and rural areas in 5-7 days.

Seller consessions and Gifts take a little longer.

Other types of credit and loans we have to work on and work with the situation we can assist you in getting to a 620 score sometimes in as little as two days, verifying income through other sources such as small business owners option is a CPA's review of financial statements and Co signers for those that cant make the debt ratio's.

25 months out of Bankruptcy and letters of explanation and alot of me begging my Executives you can buy a home with a 620+ Beacon.

How much you put down is really not viable anymore except to lower the debt and income ratios to get a loan.
By David Nuss,  Sat Dec 26 2009, 05:25
Preapproval is very important in today's market.

While we hear this is a buyer's market. Sellers are going to what to know they are working with a legitimate buyer. If you have a preapproval letter in your hand and with your offer, the Seller knows you are prepared to move forward with your purchase.

This also applies to the purchase of the many bank owned properties that are very good buys. The bank may even want you to be preapproved by their loan officers, even if you don't intend to use that bank to make the purchase.

Dave Nuss, Oregon Licensed Real Estate Broker/Realtor
http://www.Homes-SalemOR.com
By Loretta,  Tue Jan 5 2010, 16:17
I'm changing jobs early this year, but otherwise have a high credit score, solid (20%) down payment, and very low debt. I've been in my previous position 8 years and am going to a stable job as well. Will changing jobs hurt my ability to obtain a mortgage this year?
By Tawanna,  Sun Jan 10 2010, 19:03
This information was of great help to me, as I am looking forward to being a first-time homebuyer but trying to determine my first steps. A few questions...should I find a mortgage broker to shop around and determine the best lender for me or just go to myfico.com for my score and then look up lenders on the web? I don't have friends with recent loans, so I can't go on referrals. Also, may the home-buyer's credit be used as the down payment? Thank you in advance for your responses!
By Menchari,  Sun Jan 31 2010, 12:00
With so many homes being sold short plus the foreclosure homes what about pre-approval when you are able to pay cash in full? No mortgage needed.
By Bantan,  Thu Feb 18 2010, 13:47
Can I still get a loan with a low credit score?
By Steve Kappre,  Mon Feb 22 2010, 07:45
Bantan - You can get a home with a low(er) credit score, but it depends on the lender/loan officer you are working with. If you are in NJ or PA I can help, if not you may be able to find a good lender by looking on Trulia. If not, let me know what state you are in and maybe I can help you get set up with one of my peers. Check out my blog here too and A http://www.njmortgageblog.com. I write on these topics often.
By Steve Kappre,  Mon Feb 22 2010, 07:58
After reading some other comments here, know that there may be some loans available, especially for first time home buyers, that allow credit scores below 620. I close them all the time (Last one was 580's). These programs are harder to find and not every location has such options, but in NJ we close them often.

Also you have a window when getting your credit checked. A handful of credit checks by several mortgage lenders within a period of time (45 days last time I researched it) ALL COUNT AS ONE CREDIT PULL. Feel free to shop mortgages, rates, and lenders. Once you know your credit score, or have a credit report (pulled by a lender) in hand, you can use that data to shop rates (generally speaking). For the initial credit check, you may be hit for a few points or double-digit points, depending on the buyer's specific credit profile. Check out more about credit here ... http://njmortgageblog.com/channels/consumer_mortgage_finance/topics/credit_scoring
By Jason Gonzalez,  Mon May 3 2010, 04:38
A pre-approval letter is of utmost importance when you are in the market to buy a home. Check out this mortgage process breakdown, it may be of some help...http://www.lendingfl.com/MortgageLoanProcess.php

Also, you don't need to "shop" for a pre-approval. Find a professional you trust that knows what they are doing and allow them to do their job. As long as the professional you choose has ethics, you will get a good deal. When you shop around you place more stress on yourself during an already stressful transaction. Enjoy the home buying process!
By Katie Esparza,  Thu Jun 10 2010, 20:47
My husband and I are looking for a home to buy but dont have the greatest credit report how can we qualify for loan or do we need to clear up debt first???
By Sergio Hernandez,  Fri Aug 6 2010, 09:43
A pre-approval is an indicator that based on certain conditions, a buyer will qualify to borrow a certain amount of money. It is good to have a pre-approval to present with an offer, to demonstrate your buying power.
By Patricia R,  Wed Aug 18 2010, 21:19
If you are thinking about buying a home.... always get pre-approved first. You know exactly what your price range is, how much it will cost, and what you need to be able to close on the purchase.

If you have bad credit, your lender should be able to give you some pointers on what you need to do to be able to buy in the future. Typically, most lenders have overlays that don't allow financing with less than 620 fico score. There may still be some lenders willing to do it, but don't be surprised if the rates and fees are high.
By Fran Rokicki,  Thu Sep 9 2010, 17:18
When you have a pre-approval in hand while house shopping, you are a stronger candidate for a purchase and sale contract. The seller is confident in your purchasing abilities once he sees a copy of the pre-approval. If you are in a multi-offer situation, this could be a very strong point for you! I always recommend that my clients have a pre-approval in place prior to home shopping.
By Vms68,  Fri Sep 24 2010, 09:13
Our buyers had a pre-approval and then told us that they were denied a mortgage two days before closing. They then demanded a large discount on the house in order to move forward with the purchase. Is this a scam?
By William Chu,  Thu Sep 30 2010, 18:21
Vms68, a preapproval from a Broker/Lender will lead to a loan commitment. The loan commitment must have documented Prior To Closing (PTC) conditions to be satisfied for closing and funding your purchase. Did your Buyers not meet or satisfy the PTC conditions?
By Kylene Bross,  Sun Oct 3 2010, 00:30
It's my first time buying a home with my husband. We both don't have good credit. He's been at his job for five yrs. I have been at my job well it's mess up. Was a temp last year off and on. Started back this last Jan. Hired in now. We want to put both our names on a house. Will that lower our down payment on a house that's under $100,000? And will it give us a better chance on being approved?
By William Chu,  Wed Oct 6 2010, 13:20
Kylene, it seems your chances are improved however it does depend on looking at your entire financial picture (credit, income, expenses and how much loan). For this reason, you should and will benefit from spending time and committing to the Right Mortgage Lender to help you!

Feel free to contact me directly when you are ready to go forward!
By Bobbybroomall,  Tue Oct 26 2010, 09:09
Free pre-approval from local lender in Broomall, PA 610-505-1554 Bob
By Irisa Jackson Stallworth,  Wed Nov 3 2010, 15:51
Me and my husband want to purchase a home in riverdale il and our credit scores are in the mid 500 is it possible because the houses out here that we've looked at range from 18000-40000 can anyone give advice because im tired of giving rent money to waste.
By Sha,  Sat Nov 6 2010, 13:58
Do lenders charge a fee for the pre-approval letter?
By Timothy M. Garrity,  Mon Nov 15 2010, 06:58
Excellent post. As a former Loan Officer and Production Manager in the mortgage industry, I can say with confidence that having a pre-approval in today's lending world will do a buyer far more justice than just having a pre-qualification.

Thanks for taking the time to write this.

TG
By Elliott R. Oliva,  Mon Dec 13 2010, 09:46
Good information on here. Here is straight forward explanation on why a Pre-Approval is better than just a Pre-Qualification.
http://www.elliottoliva.com/preapprovedvsprequalified

Also, you are not penalized a point per credit inquiry. Please refer to this article for more details about how credit works as well as inquiries.
http://www.elliottoliva.com/youandyourcredit
By Sean Farley,  Wed Dec 22 2010, 06:17
I have even seen it practiced in this market that Seller's and/or their agents want buyers with Pre-Approvals to consider a buyer. While the pre-qual is the jumping off point for home purchase, many variables can impact the success of getting Loan Commitment from a lender and some of these items do not get discovered until Pre-Approval.
To answer Loretta's post....Loretta, changing jobs can most certainly impact your pre-approval and ability to get Loan Commitment. Employers in this market want to see long-term provable income. When switching jobs they want to see that the new position is stable. Two things that might swing lenders to approve a loan for you sooner after job switch are low debt to balance and debt to income ratios, and your liquid capital. Perhaps you have already made the switch and have several months of provable income and this no longer matters.
By Angelita,  Sun Dec 26 2010, 11:22
How can I determine my debt to income ratio?
By Rob Jones,  Mon Jan 3 2011, 15:18
I was told that having your credit pulled by different lenders while shopping around would not lower your credit score. A lender gave me this info. He said the only people that are going to tell you that are lenders who don't want you shopping around. He said only way credit is lowered like this is by having it pulled for a bunch of different reasons. Cars, credit cards, loans, etc. You will not be penalized for making a wise decision to shop around for the best deal.
By Natashia Kennedy,  Tue Feb 8 2011, 16:03
Im looking for a broker in the Elkton, Md area. I am interested in possibly buying a house in the area. Lots of questions.
By David Gifford,  Tue Feb 22 2011, 19:54
A car dealer told me that the credit bureaus don't lower the scores if it looks like all the pulls were done in a month and all for the same reason ...ie to buy a car or house??? Can anyone verify???
By David Sheir,  Thu Jun 30 2011, 18:16
Great article stressing the important differences between pre-qualified and pre-approval.
By Mcw1161,  Fri Jul 1 2011, 04:45
I'm looking to buy a FL condo in a 55+ development. I'll be paying cash, but I'm wondering if the approval of the condo board necessites good credit as well. I have a fairly good retirement income but bad credit.

All answers appreciated.
By Jennifer Ratcliff,  Wed Aug 3 2011, 08:06
Excellent article. I will be forwarding this to all my buyers. It still amazes me how difficult it is to get people to be prepared to purchase a home. Pre-approval is a must!
By Joel Rivera,  Wed Oct 5 2011, 16:39
This is a Great Guide. Pre-Approvals are vital!
By Sharla5372,  Mon Oct 10 2011, 09:04
I had a lender run my credit report and they ran it 3 times under each bureaus. Then another ran it twice. How can i dispute that?
By Shawn Rosa,  Tue Dec 13 2011, 10:59
pre-approval and pre-qual are very different. pre-quals are worthless.
By Vincent Paige - RE/MAX,  Fri Feb 24 2012, 20:01
Please get a pre-approval before you start shopping!!


Highest and best regards,

Vincent Paige
REALTOR® | Century 21 Elite Home Finders
Certified BPO Specialist
5401 S. Kirkman Rd., Ste 725 | Orlando, FL
Direct: 407.256.8190 | Fax: 407.264.8073

Visit http://www.ThePremiumProperties.com and find your dream home today!
By Adrian Provost,  Mon Feb 27 2012, 16:44
You should be pre-approved before you begin the home search process*
By Ernie Lester,  Fri Apr 13 2012, 08:43
Try our Ask Mort - Transaction Intelligence® coming soon to consumers and available for BETA inspection by industy pros. You figure out your own reality (learn your purchase power and best terms) based on your own budget. What could be simpler then to enter your two constraints (the Total Initial Cash you can invest and your budget for Total Monthly Payment) and get immediate, valuable, accurate automated advice. Then you are ready to apply for the pre-approval letter. http://www.mortgenius.com
By joNtank2004,  Wed May 2 2012, 14:58
looking to buy a home in rome, ga. we have bad credit and filled bankrupt chp 7 about 4 years ago. However, we have recieved a very large settelment and are will to put 35,000 to -40,000 down on a house that asking price is 89,000. will this help us? what do we need to do next?
By Daniel,  Thu Jun 7 2012, 12:26
check with your local bank or credit union, generally you will need to wait 7 years, however, a bank or credit union may help if you have a very large down payment
By Hopefulhomebuyer,  Wed Jun 13 2012, 14:44
found a house I can afford. Credit is good. Debt is paid off but income is fixed on Social Security could I still qualify? I can supplement income if I have a home of my own.
By Matie,  Thu Jun 14 2012, 01:47
Home of your dream? Find it with us. http://www.indexpost.com/
By Valen Smith,  Sun Jul 22 2012, 03:02
Pre-approval is the next big step. This process is much more involved, but will provide you with a specific dollar amount that you can afford. Most real estate agents will tell you that getting pre-approved is key to getting the home you want. Lenders and sellers will know you are serious about buying when it's time to make an offer. And in hot real estate markets, a buyer may need to act fast; if the competing buyer has a pre-approval in hand and you don't, they win.
Valen from http://britainloans.co.uk/
By Homenyhay,  Thu Jul 26 2012, 20:48
my dad and I are trying to buy a house he scores between 700- 800. he has social
security as income that comes in at $2000.00 per month . I score about 630
and I had a Chapter 7 discharged 2 years ago .I make about $ 5000.00 per
month. We only have $10,000 to put down... can we get financed and how much could we qualify for or are we in dream-land.
By Qnzlatina37,  Thu Aug 9 2012, 04:53
I saw a house in Florida a short sell that I would like to purchase for 299, I'm a first time home buyer with a score of 687, I work for 9 yr at my job. Between my job and spouse support my income is in the 50,000. I need a pre-approval to be able to buy this home. Can you referral me some mortgage lender in queens ny thanks.
By Qnzlatina37,  Thu Aug 9 2012, 05:11
I saw a house in Florida a short sell that I would like to purchase for 299, I'm a first time home buyer with a score of 687, I work for 9 yr at my job. Between my job and spouse support my income is in the 50,000. I need a pre-approval to be able to buy this home. Can you referral me some mortgage lender in queens ny thanks.
By lacreek99,  Tue Aug 28 2012, 15:06
I want to buy a home in Roosevelt Utah and my credit score is a 609. I have been working hard to get it up to that. I was told that I would be able to get a home loan if I got my credit score above a 600, but now I am being told that I have to work to get it higher to get a loan. I have been at the same job for 5+ years and my debt is low except for my student loans which are just over half way paid off. I want to know if there is anyway I can get a home loan or if I will have to continue to rent fdor the next several years. I have been renting from the same lady for almost 3 years. Please help. I want to start building equity in a home of my own, but I'm currently not getting anywhere. Please respond anyone who can help.
By Carmen Brodeur- Top 1% Realtor,  Tue Oct 16 2012, 10:26
In Arizona buyers must present a standard Pre-Qualification form filled out by their lender when submitting offers. This document is very important and actually incorporated into the Arizona purchase contract.
By masondag07,  Wed Jan 23 2013, 05:44
had extremely bad credit and I never knew I could get a home loan. I thought it would be many many years before I can even qualify. My wife Patty and I would like to than Mortgage Professional Gustan Cho of Florida. Gustan Cho is a mortgage broker who went beyond the call of duty and although we were small timers, treated us like royalty. Gustan Cho always returned our calls whenever we had any questions and even was available on weekends. Gustan Cho is a great advisor and an Angel and truely always sincere. Gustan Cho cares more about his clients than himself. Patty and I asked Gustan Cho what we can do to thank him and he told me all of his clients come back to him and the greatest compliment he gets from his clients is when they call him whenever they need mortgages or refinances and refer him to friends, neighbors and colleagues. I want everyone who needs a loan to know that Gustan Cho will get you a loan even though you have bad credit. Depending on how bad your credit is, it might take some time but Gustan Cho will repair your credit for free and get you qualified.
I was surfing credit repair websites and ran into this site with Gustan Cho's article. My realtor introduced me to Gustan Cho over a year ago. My realtor, Jim Davis, told me that if I had credit problems, Gustan Cho can get me approved for a home mortgage. I had prior judgments, foreclosures, collections, and charge offs. I did not file bankruptcy. I called Gustan Cho and told him my situation. Gustan Cho told me to be totally honest with him if he wants my help. I was. Gustan Cho told me to apply online on his website, http://www.gustancho.com and did what I was told. Gustan Cho then told me that he could get me a mortgage but I needed to do several things in regards of my credit. Long story shot, Gustan Cho helped me and my wife Patty get our home with a FHA loan in about a year. Gustan Cho helped erase and repair our bad credit. I never doubted Gustan Cho. I highly recommend Gustan Cho for not just for mortgages, but for credit repair too. Gustan Cho does not charge for credit repair.

Charles M.
Hillsborough County, Florida
Tampa
By Danyel Mandeville,  Tue May 28 2013, 19:02
My husband and I are trying to buy our first home. Our credit scores are not very good. We are working on fixing them, but we have found a house we love that is very affordable. We both work full-time and my husband is a veteran. We have contacted several lenders and been denied by all of them. Are there any companies out there that will help someone in our situation? Are there any that treat people like people and not just numbers?
By Paul Mccormick,  Tue Aug 6 2013, 10:45
And the best tool available FREE for 1st time homebuyers is IB Calculator from InBedrock.com. It will help you better understand ALL real costs of homeownership: 1) Purchase closing costs, 2) Financing costs, 3) Operating costs like real estate taxes + homeowners insurance + utilities/maintenance costs, and finally Sale closing costs. Perform Buy v Rent and Breakeven Analysis, and understand how + why you build equity over time in your home. Get Started Today! No advanced math or EXCEL skills needed.
By Joshuacfelzer,  Thu Aug 29 2013, 07:09
1 year out of BK, Short Sale or Foreclosure. Call me now to get preapproved. Large U.S Bank -- Josh Felzer 215-603-5383
By Stanley Main,  Sun Sep 8 2013, 12:02
I had a pre-approval on a a loan, after I made a bid on a house, the lender then tossed me around for a year and after submitting all of my information to the broker over and over and over to the broker, the broker then told me I needed to move to KY in order to secure the loan and close and made a promise that the loan would close in the email.
I quit my job of seven years and left the house I had been living in for almost 15 years, got another job in Paducah, drove to Paducah from Southern California and spent two weeks trying to get my commercial driving licenses converted from CA to KY. I then flew back to Southern California packed up all of my mobile stuff into a 1984 GMC pickup truck I got for "free" put a new transmission in it, exhaust, and on the way a complete set of new tires. Then drove back to KY at 50 to 55 mph. I made it to KY on a Sunday night, got to bed at 11Pm, and started work at my new job at 7 am on Monday. I ended up having to buy a laptop while living in a hotel for two months while still trying to get the loan to close while repeatedly sending the exact same information over and over again trying to close the loan. During this time my fiance got kicked out of the place where she was living and I had to put her and her kids in one of the worst hotels in Paducah for a month. Fortunately we found a house to rent almost by accident, and by this time the seller of the house told us they needed to put the house I was trying to buy back on the market.
My credit is wrecked, my job history is wrecked, I'm barely making enough now to survive, the bills are mounting, and I've had to switch to part time work, because I can't get over time working full time and now have to work two part time jobs in order just to make the bills.
My landlord has offered to sell us the house we are living in, on contract, the house is over priced for it's "worth" the interest is 4% over market, the trade off is ... I don't have to deal with a bank again, I don't have to jump through hoops of fire, I don't have to walk barefoot through piles of broken glass, I don't have to prove I'm not an alien from another planet.
I finally got my account with Cplant to a point where I can dump my bank and try to start over again.
BTW if you hear the bagpipes down town, it's probably me trying to make a couple of extra bucks after work. Drop by and say howdy.. LOL.

Paducah is NOT a bad place to be "stuck" I just don't like banks anymore.
By deepsydiver19,  Fri Nov 1 2013, 21:36
Currently live in NJ, would like to purchase house in Tenn or West Va. Where do I look for financing, NJ or other state? Does VA Loan matter?
By Albana Collaku,  Wed Dec 4 2013, 19:06
As long as the lender is lcensed to lend in the state you are purchasing, you are fine. Ask them and compare rates and fees too.The market here in DC metro is different and most are looking for the local lender with in house procesing and underwriting.
By Mtnmortgageguy,  Fri Feb 7 2014, 10:54
Your offer will be taken far more seriously if you are pre-approved vs pre-qualified. This will entail submitting all your info to the lender, having him pull credit and run your application through Fannie Mae, Freddie Mac automated underwriting system. Then you have a very tight number on what you can buy. The lender should not charge you more than the cost of a credit report (usually under $30). With a pre-approval the lender should only require a good appraisal, title, approval of the HOA (if there is one) and no significant change to your income, employment, credit or assets between now and closing. This is alot more concrete (and takes more effort on both parties) than a "pre-qualification". Also, credit inquiries for a mortgage loan within a 14 day window only count as one inquiry hit on your score (that is straight from Fair Isaac Co, who puts out and owns the FICO scoring system). If you need a mortgage loan in CO please visit my web site at http://www.mtnmortgageguy.com to learn more. It's not your typical mortgage website, there is a ton of helpful information.
By carinebullock,  Sun Feb 9 2014, 13:57
How do VA Loans work?
By Tanya Aldridge,  Thu Mar 27 2014, 16:04
Today pre-approvals are required by any of the realtors that I do business with as well as FSBO, before an offer is even considered on the home you want to purchase. This also solidifies for you and the seller, that you can afford and have the qualifications to purchase the home. It also makes sure that no one wastes time on showing homes to buyers who actually cannot afford them.

Tanya Aldridge
Licensed Loan Originator
NMLS 881332
Paramount Residential Mortgage

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When you're in the market to buy a home, your credit score is very important. Most lenders use this three-digit number (which is created by evaluating factors like how much debt you have, your payment history for things like credit cards and car loans, and ...

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