6 steps to mortgage preapproval
First things first, what does mortgage preapproval actually mean? It’s a letter from lenders that tentatively tells you how much money they’ll let you borrow. And while it’s not a guarantee, it shows sellers and real estate agents that you’re serious about buying a home. That stamp of approval helps your offer shine and can give you the edge you need to beat out other homeowners-to-be.
Now, let’s move on to how to get a mortgage preapproval. Here’s a quick guide to help make it happen.
1. Get your credit score
You’re going to want to know this number before you apply for preapproval. It shows lenders how reliable you are and plays a big part in what your loan terms will look like. Remember, you’re hoping for a high number here. If your credit score is over 620, you’re in pretty good shape.
2. Check your credit history
The next step is to round up your credit report. Lenders take a look at this to see how you’ve managed money in the past, so they’ll be checking out whether you pay on time, if you have debts and how long you’ve been using credit. Be sure to go over everything with a fine-tooth comb. If something seems out of place, you’ll want to sort it out sooner rather than later to put a stop to any snags.
PRO TIP
You can score a free copy of your credit report from the three major credit bureaus, Equifax, Experian and TransUnion, every 12 months.
3. Find your debt-to-income (DTI) ratio
Now it’s time to figure out your debt-to-income ratio. Your DTI is a simple way to show how much money you owe each month compared to how much you make. To find it, you’ll add up your monthly debts, like credit card payments, and divide them by your gross monthly income. Lenders love lower ratios—think 36% or less. If your DTI is running higher, bring it down by boosting your income or paying off as much debt as you can.
4. Pull together important info
To get preapproval for a home loan, you’re going to need to gather up documents so lenders can make sure all your information checks out. Go ahead and grab your:
- Proof of income: You’ll want to track down pay stubs, tax returns and W-2 forms from the past two years.
- Proof of assets: Your latest bank and investment account statements will help prove you can afford a down payment and other costs.
- Employee verification: Recent pay stubs and employer contact info will help lenders confirm your job and income.
- The details on any debt: Your lender needs a full look at your finances, so they’ll want to know about things like student loans, auto loans and credit cards.
5. Get in touch with your lender
Now that you’ve got your paperwork squared away, you’re ready to reach out to your lender to go through the preapproval process for your mortgage.
6. Time to apply for a mortgage preapproval
Be sure to confirm with the lender that you want a mortgage preapproval and not a pre-qualification. A preapproval comes with a loan commitment, and you’ll have the peace of mind knowing an underwriter has reviewed your loan request. A prequalification is based on verbal information you provide and does not have the level of underwriting that a preapproval does. This also helps boost your buying leverage and gives you an edge over other buyers who don’t have a firm preapproval commitment.
Ready to get preapproved?
Speak to your Citi Specialist about getting preapproved with a Citi SureStart® Pre-Approval. Unlike many preapprovals, it comes with a firm commitment to lend.
Preapproval vs. prequalification
Both prequalification and preapproval can be helpful for home buyers, but they’re not quite the same thing. Let’s break down how the mortgage prequalification process is different from the preapproval process, so you can see which is the best fit for you.
| Aspect | Prequalification | Preapproval |
|---|---|---|
| Definition | An initial evaluation of your creditworthiness based on self-reported financial data. | A more thorough assessment involving an actual application and detailed verification of your finances. |
| Process | Quick and based mostly on the information you provide. | Involves a formal application and credit check. |
| Documents Required | None or very basic financial information. | Detailed financial documents such as W-2 forms, tax returns, bank statements, etc. |
| Time Taken | Usually fast, can be done over the phone or online. | Takes longer due to the detailed scrutiny of financial documents. |
| Result | An estimate of how much you might be able to borrow. | A specific loan amount that you are likely to be approved for. |
| Credibility | Less credible, as it does not involve a detailed analysis or credit check. | More credible, often required by sellers to make an offer on a home. |
| Validity | Generally valid for a short period, often a few months. | Typically has a set expiration date, usually 60 to 90 days after issuance. |
When should you get preapproved for a mortgage?
It’s a good idea to start the preapproval process early on in your home buying journey—around a few weeks or months before you start making offers. That gives you a chance to iron out any wrinkles in your credit history and gives you time to apply for preapproval.
One thing to watch out for? Preapproval for a mortgage doesn’t last forever. Your letter is typically good for about 60 to 90 days, which means you only want to get preapproved if you’re serious about your search.
If buying a new home takes longer than you thought, you can get your updated documents back together and go through the process again. As a silver lining, your lender will already have most of your info on file.
