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Mortgage Pre-Approval: What it is and Why You Should Get it

By Laura James, Fairmont Agency

Most home buyers (especially first time home buyers) don't have hundreds of thousands (or millions) of dollars just sitting in the bank. So most home buyers will need financing to purchase a home - a mortgage.


A pre-approval is more involved that a pre-qualification (more on that in a second), but less involved than a full mortgage application. And once you have one, you’ll be able to demonstrate that you are a serious homebuyer whose finances have been vetted and whose mortgage has been conditionally approved by a lender.

To be pre-approved for a mortgage, you’ll need to complete a financial profile. You will provide the basics, like your name, work history, and where you’ve lived the last few years. You will also need to provide documentation of your income, assets, and debts. Typically, that documentation includes your most recent W2s, your federal tax returns, a few months worth of bank statements for checking and savings accounts, and information about other investment assets or any property you already own. You’ll also give your permission for your lender to run a credit report with all three of the major credit reporting bureaus.

Your financial information will be matched up with lender’s debt-to-income and credit score requirements. Once you’ve submitted your profile, you’ll find out if you qualify for a mortgage, and if so, the maximum amount a mortgage lender would be willing to loan you, based on the information you provided.


While pre-qualification and pre-approval sound basically the same, they are not. A mortgage pre-qualification is an informal assessment of what sort of mortgage terms a borrower might expect based on their self-reported financial situation.

So, for pre-qualification, you might tell a lender how much money you make, give a ballpark estimate of your current debt load, and take a guess at your current credit score. The lender will punch those numbers into their in-house spreadsheet and spit out a rough guess as whether you could potentially qualify for a mortgage, and if so, an estimate of size of a loan they might be willing to give you.

Pre-qualification doesn’t require a credit check or any sort of asset verification, so it’s usually not especially accurate, and it’s definitely not wise to base your home search on a pre-qualification.



Probably the best reason to get pre-approved for a mortgage is to avoid surprises related to home financing once it comes time to make an actual offer on a home. Even if you don't suspect that you’re going to face any difficulties or issues securing financing for your home purchase, trust me and do yourself a favor and get pre-approved just in case!! Getting pre-qualified allows you time to clear any hurdles ahead of time.

If you have a complicated financial situation—perhaps you own a business, are self-employed, or have a negative past financial issue lingering on your credit report—getting pre-approved for a mortgage can help you understand how your current financial situation stacks up against lenders’ standards and requirements for mortgage borrowers. Borrowers with complicated financial situations are approved for mortgages every day, though sometimes they’re required to show additional documentation for their unique situations.

That said, it’s always much better to find out about issues before you’ve got real estate agents and sellers and contracts involved. And once you’ve secured pre-approval, you can rest a little easier, knowing that you’ve already jumped through most of the necessary hoops to get financing for your home purchase.


Even if you think you’ve got stellar credit, the mortgage pre-approval process can alert you to any errors on your credit report. You mean you didn't buy that Porsche? Or get that cash advance? Uh Oh!!

Millions of Americans have inaccurate information on at least one of their credit profiles with the major credit reporting bureaus. If you’re one of them, you’ll be much better off finding out early in your home-buying process. The last thing you want is to discover a credit issue as you’re trying to put in an offer on your dream home.

Mistakes and errors on credit reports are surprisingly common, though the process of disputing and removing inaccurate credit data is relatively straight-forward. But it can take some time—anywhere from a few weeks to a few months. As long as you’ve started your pre-approval application early enough, you can clear up any issues related to errors or inaccurate credit reporting before they become a major inconvenience.


When you secure a pre-approval for a mortgage, you won’t just get a ‘yes’ or ‘no’ answer from a lender about whether you qualify for a mortgage. You’ll actually find out how much you’ll potentially be able to borrow, based on your current financial situation. Knowing that you can only borrow $520,000 should keep you from being tempted to look at homes that cost $595,000.


This is my favorite reason (blame the former litigator in me - I LIKE TO WIN). Most local real estate markets are pretty competitive. So if you want the edge over other would-be bidders on the homes in your area, it pays to have a pre-approval letter in hand. Being pre-approved for a mortgage shows sellers that you are a trustworthy (and credit-worthy!) homebuyer who can secure financing, should the seller agree to take your offer.

Agreeing to accept an offer from a buyer who may have trouble securing financing is a major hassle for a home seller. So many sellers would rather take a slightly lower offer from a potential buyer who can provide solid evidence that financing will happen than accept a higher offer from a potential buyer who has yet to start the mortgage process. And as an extra bonus, being pre-approved can also give you additional leverage for asking for repairs or other seller concessions.

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