LearnVester Question: What IS Mortgage Pre-Approval?

You ask, and we answer.

Answer.

Pre-approval is the process during which a bank checks your credit, asks for proof of income, and goes through some of the other steps it would go through to actually approve your mortgage.

If you’re applying for pre-approval, be prepared to document your income, assets like savings or property, and your credit history. Bring at least three months’ worth of pay stubs, bank and investment statements, and your most recent tax return. If you’re self-employed or freelancing, lenders typically like to see that you’ve had two years of steady income. So, bring copies of long-term contracts, past tax returns, bank statements, and pay stubs.

Once you’ve been pre-approved, the bank will give you a letter telling you how big a mortgage you would qualify for and what size purchase price that translates into. Pre-approval doesn’t tie you to that lender and it’s not a final approval on an actual mortgage, but assures a seller that you’d have the money to close on a deal.

Ask if the lender will guarantee a good faith estimate—a breakdown of the costs related to getting a mortgage through this lender. These can include recording fees, appraisal charges, the costs to access your credit reports and inspection reports on the home you want to buy.You typically get a copy of this within a few days of applying for the loan, but the lender isn’t required to guarantee it. So ask for one, in writing.

The pre-approved loan is usually good for 90 to 120 days.

For more information, read our LV Basics on mortgage pre-approval.