How to get preapproved for a mortgage (2024)

If you're ready to begin your home-buying journey, get preapproved for a mortgage first.

Preapproval can help you determine what your budget is and show sellers you're serious about buying, which can be critical in a highly competitive real estate market.

Below, CNBC Select breaks down how a mortgage preapproval works, why its a good thing and more.

A mortgage preapproval letter is a document from a lender conditionally offering you a mortgage. It contains the loan terms — including the dollar amount, monthly payments and interest rate — and is the lender's promise that, unless your financial situation changes by the time of purchase, you'll be approved under the outlined terms.

The amount of time it takes depends on the lender and the type of preapproval you're looking for. PNC Bank advertises that it can offer preliminary preapproval in as little as a half-hour, and both Ally Bank and Better Mortgage say they can process your preapproval online in minutes.

To get a formal preapproval letter, however, the institution will need to review your tax returns and other paperwork, which can take up to 10 days.

A preapproval letter has an expiration date, which varies by lender. Most are active for 30 to 90 days, during which you can shop for a home and formally apply for a mortgage.

There's no legal requirement to get preapproval — and it will (temporarily) ding your credit score — but a preapproval letter is a good idea for two reasons.

You'll find out what you can afford

You'll position yourself as a serious buyer

Sellers prefer buyers with a preapproval letter because it shows that you can secure a mortgage and are seriously looking for a home. In competitive markets where they can afford to be picky, that can make all the difference.

A verified preapproval letter is more involved, however, requiring you to upload or submit financial paperwork.

Since preapproval is a more rigorous process than prequalification, have all your ducks in a row before applying.

Check your credit score

Your credit history will play a big part in the lender's decision, so its important to see how you stand. You can use a credit monitoring service from your credit card issuer, such as CreditWise® from Capital One. You can also check your credit by using a free service from Experian — Experian free credit monitoring. The higher your credit score, the better the terms you'll receive on a mortgage.

You won't see your exact score, since mortgage lenders use a slightly different scoring model not readily available to the public. But it will give you a good idea of what you're working with.

Gather documents

A lender will need to see documentation of your income, assets, debts and other aspects of your personal finances. While every lender has different requirements, having these at the ready is a good starting point:

• At least two most recent pay stubs
• Tax returns from the past two years
• Bank statements from the last 60 days
• Employment verification documents
• Employer contact information
• List of your debts
• Investment account statements, including 401(k) and IRA
• Proof of rental payments or landlord contact information
• Gift letters (if you've been gifted money for your down payment)

Apply for preapproval

Most larger mortgage providers allow you to apply for preapproval on their website. Typically, you input your desired down payment and loan amount, as well as your contact information, Social Security number and details about your income, assets, real estate holdings and credit.

You can usually receive preliminary preapproval online in a matter of minutes and get an estimate of how much house you can afford. A verified preapproval letter, however, usually requires you to upload W2 forms and other documents and can take up to 10 days.

A house is a huge investment, so get several quotes to find the best rates and terms. Each quote involves a hard pull on your credit but, if you get them all within a few weeks it usually only counts as one negative event, rather than multiple.

Once you receive a preapproval letter, you can use it when you make an offer to indicate your viability and seriousness.

Getting preapproved for a mortgage could be the difference between getting your dream house and watching someone else move in. It's also a more accurate way to find out how big a loan you can expect to get. Apply with several lenders at the beginning of your homebuying journey, to ensure you get the best terms.

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