What Preapproval Actually Is

Preapproval is a lender's written statement that they will lend you up to a specific dollar amount, based on your financial information. It is not a promise to lend — it is a conditional statement that says "if everything you told us is true, and if the house you buy appraises at or above the purchase price, we will lend you this much."

Preapproval is different from prequalification. Prequalification is what a lender tells you over the phone or online based only on what you say about your income and debts — no documents, no verification. Preapproval requires you to submit actual documents: pay stubs, tax returns, bank statements, and a credit report. The lender verifies what you told them.

You need preapproval before you make an offer on a house. Real estate agents and sellers expect to see it. Without it, your offer is not competitive, and many sellers will not negotiate with you at all.

Key Takeaways

  • Preapproval requires you to submit documents that prove your income, debts, and savings — not just tell a lender what you earn.
  • The process takes three to five business days if you have your documents ready, and the lender will pull your credit report, which temporarily lowers your score by a few points.
  • You will need recent pay stubs, two years of tax returns, recent bank statements, and a list of your debts before you contact a lender.
  • Preapproval is conditional and can be withdrawn if your financial situation changes, your credit score drops, or the house does not appraise.
  • You can shop with multiple lenders within a two-week window and the credit inquiries will count as one inquiry, so comparison shopping does not hurt your score.

Gather Your Documents Before You Contact a Lender

Lenders will ask for the same documents no matter which bank or mortgage company you choose. Collect them before you call, so you can move quickly once you find a lender you want to work with.

You will need: two recent pay stubs (usually the last 30 days), your last two years of federal tax returns (the full return, not just the summary), two recent bank statements (usually the last 60 days), and a list of your debts. The debt list should include credit cards, car loans, student loans, and any other monthly payments you make. Include the creditor name, the balance owed, and the monthly payment amount.

If you are self-employed, you will need two years of business tax returns and possibly a profit-and-loss statement for the current year. If you receive income from sources other than a job — rental income, Social Security, disability, alimony — bring documentation for that too. The lender needs to see that the income is stable and likely to continue.

If you have changed jobs in the last two years, bring an offer letter from your current employer or a letter from your employer stating your job title, start date, and annual salary. Lenders want to know that your income is stable.

Choose a Lender and Submit Your Information

You can get preapproval from a bank, a mortgage company, or a credit union. Banks are often slower but may offer slightly lower rates if you already have accounts there. Mortgage companies move faster and often have more flexible lending rules. Credit unions typically offer competitive rates to their members.

Contact the lender by phone or through their website. Tell them you want to start the preapproval process. They will ask you basic questions: your name, address, phone number, the approximate price range of the house you want to buy, and when you plan to buy. Then they will ask you to upload or email your documents, or they may ask you to come in person.

Do not worry about the exact wording on your documents. Lenders have seen thousands of pay stubs and tax returns in different formats. What matters is that the documents are recent, clearly show your name and income, and are readable.

Understand What the Lender Will Check

Once you submit your documents, the lender will pull your credit report. This is a hard inquiry, which means it will show up on your credit report and lower your score by a few points — usually three to five points. The impact is temporary and recovers within a few months.

The lender will verify your income by looking at your pay stubs and tax returns. They want to see that your income is stable and that you have earned roughly the same amount for the last two years. If you received a raise recently, that is fine — they will use your current income. If you changed jobs, they want to see that your new job pays at least as much as your old one.

The lender will calculate your debt-to-income ratio, which is the total of all your monthly debt payments divided by your gross monthly income. Most lenders want this ratio to be 43 percent or lower, though some will go up to 50 percent. If your ratio is too high, you will not be preapproved for as much money, or you may not be preapproved at all.

The lender will also verify that you have enough money in savings for a down payment and closing costs. They want to see that the money has been in your account for at least two months — they are checking that you did not borrow it from someone else.

What Happens When You Get Preapproved

If everything checks out, the lender will issue you a preapproval letter. This letter states the maximum loan amount, the interest rate (or the rate range), the loan term (usually 15 or 30 years), and the conditions of the preapproval. It will also list what the lender still needs to verify — usually the appraisal and a final check of your credit report right before closing.

The preapproval letter is valid for 60 to 90 days, depending on the lender. After that, the lender will want to update your financial information before they will issue a new letter. This is normal — lenders want to make sure nothing has changed since you first applied.

You can now make offers on houses. When you make an offer, you will include a copy of your preapproval letter. This tells the seller that you have the financial backing to buy the house, which makes your offer more attractive than an offer from someone without preapproval.

What Can Cause Preapproval to Fall Through

Preapproval is conditional. The lender can withdraw it if your situation changes between preapproval and closing. The most common reasons are: you lose your job or change jobs to a lower-paying position, you miss a payment on a credit card or loan, you take on new debt (like a car loan), or your credit score drops significantly.

The house itself can also cause preapproval to fall through. If the house does not appraise for the purchase price, the lender may reduce the loan amount. If the appraisal comes in lower than the price you agreed to pay, you will have to make up the difference in cash, or you will have to renegotiate the price with the seller.

To keep your preapproval solid, do not explore for new credit, do not miss any payments, and do not change jobs if you can avoid it. If you must change jobs, make sure your new job pays at least as much as your old one and tell your lender when ready.

Shopping With Multiple Lenders Without Hurting Your Score

You should get preapproval from at least two or three lenders so you can compare rates and terms. The good news is that multiple credit inquiries within a two-week window count as a single inquiry on your credit report, so comparison shopping does not hurt your score.

Contact your lenders within a 14-day window. Tell each one that you are shopping for the best rate. They will pull your credit report, but because the inquiries are close together, the credit bureaus treat them as one inquiry. After 14 days, new inquiries will count separately.

When you compare preapproval letters, look at the interest rate, the loan term, the closing costs, and any fees the lender charges. A lower interest rate saves you money over the life of the loan, but higher closing costs upfront might offset that savings. Ask each lender for a Loan Estimate form, which breaks down all the costs in a standard format so you can compare apples to apples.

Frequently Asked Questions

Does preapproval mean the lender will definitely lend me the money?

No. Preapproval is conditional. The lender will lend you the money if the house appraises at or above the purchase price, if your financial situation does not change, and if you did not misrepresent your income or debts. If any of those conditions change, the lender can withdraw the preapproval.

How long does preapproval take?

If you have all your documents ready, preapproval usually takes three to five business days. If you are missing documents or if the lender needs to verify something with your employer, it can take longer. Start the process as soon as you decide to buy, so you have time to shop for houses.

Will preapproval hurt my credit score?

The credit inquiry will lower your score by a few points, usually three to five. The impact is temporary and your score will recover within a few months. Multiple inquiries within 14 days count as one inquiry, so shopping with multiple lenders does not hurt you more than shopping with one.

What if I do not have two years of tax returns?

If you are self-employed or if you have been in your current job for less than two years, tell the lender. They may ask for additional documentation, like a profit-and-loss statement or a letter from your employer. Some lenders have programs for people with shorter employment history, though the rates may be higher.

Can I be preapproved for a larger amount than I want to borrow?

Yes. The preapproval amount is the maximum the lender will lend you, not the amount you have to borrow. You can borrow less and still use the preapproval letter to make an offer. Borrowing less means a smaller monthly payment and less interest paid over the life of the loan.