Bottom line: Mortgage preapproval is a lender's conditional commitment to loan you up to a specific amount, based on a review of your income, assets, credit, and employment. It is required before making an offer in most markets. Getting preapproved with multiple lenders in a 45-day window lets you compare rates without additional credit score damage.
Preapproval and prequalification are often confused. The difference matters:
Prequalification: A quick estimate based on self-reported income and credit. No documentation required. Not a commitment. Sellers and agents give it little weight.
Preapproval: A documented review of your actual financials. Requires documents. Includes a hard credit pull. Results in a conditional commitment letter from the lender. This is what you need to make competitive offers.
What Lenders Review
Credit score and report. The lender pulls a tri-merge credit report (from all three bureaus) and uses your middle score. Conventional loans typically require 620+; FHA 580+. The best rates go to borrowers at 740+.
Income. Lenders verify income through pay stubs, W-2s, and tax returns. They use your gross (pre-tax) income to calculate qualifying ratios. For self-employed borrowers, lenders typically average the last two years of net income from Schedule C.
Employment stability. Most lenders want at least two years of continuous employment in the same field. Job changes within the same industry are usually fine; career changes close to application can complicate things.
Assets. Bank statements verify your down payment and closing costs. Lenders want to see that these funds have been in your account for 60+ days ("seasoning") — large unexplained deposits trigger questions.
Debt-to-income ratio (DTI). Your total monthly debt payments (including the proposed mortgage) divided by gross monthly income. Most conventional loans require DTI below 43–45%.
Documents You Will Need
Gather these before you apply:
- Two years of W-2s or 1099s
- Two years of federal tax returns (all pages)
- 30 days of pay stubs (most recent)
- Two to three months of bank statements (all pages, all accounts)
- Two to three months of investment/retirement account statements
- Government-issued photo ID
- Social Security number
- Contact information for landlord or mortgage servicer (last 12–24 months of housing history)
Self-employed borrowers also need: business tax returns (2 years), year-to-date profit/loss statement, and possibly a CPA letter.
- Apply with at least two or three lenders — rate differences of 0.25–0.5% are common and worth shopping. All mortgage inquiries within 45 days count as a single hard inquiry for FICO scoring.
- Do not open new credit accounts, make large purchases, or change jobs between preapproval and closing. Any of these can affect your qualifying ratios or trigger a re-underwrite.
- Preapproval letters are typically valid for 60–90 days. If you have not found a home by then, request an updated letter — it may require refreshed documents.
How to Apply
Option 1: Bank or credit union you already use. Fast relationship, but rates may not be competitive. Get their offer and compare.
Option 2: Mortgage broker. A broker submits your application to multiple wholesale lenders and shops for the best rate on your behalf. Often competitive on rate, especially for borrowers with complex situations (self-employed, non-standard income).
Option 3: Online lenders. Faster process, often competitive rates. Large lenders like Better, Rocket Mortgage, and loanDepot preapprove quickly (sometimes same day). Good for straightforward borrower profiles.
Option 4: Local mortgage company. Often well-connected to local real estate markets, faster closes, and more flexibility in underwriting than large banks.
Apply with two or three of the above in the same week. Deliver the same documents to each. Compare the Loan Estimates (a standardized three-page form lenders must issue within three business days of application) on an apples-to-apples basis.
Reading a Loan Estimate
The Loan Estimate standardizes mortgage comparison across lenders. Key sections:
- Page 1: Loan amount, interest rate, monthly payment, total cash to close
- Page 2: Closing costs broken out by category; services you can and cannot shop for
- Page 3: APR (total cost including fees), comparisons, and contact information
Compare APR (which includes fees) rather than just interest rate. A lower rate with higher origination fees may cost more than a slightly higher rate with no origination fees — the Loan Estimate makes this comparison possible.
Mortgage preapproval requirements vary by lender and loan type. The documents listed are typical but individual requirements may differ.
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