What is Preapproval, and How Does it Work?

You’ll likely need mortgage preapproval if you’re thinking about getting your own home. A loan preapproval for a home gives a ballpark idea of the number you can afford, based on the program you’re applying for. Essentially, it’s a way of letting sellers know that you’re financially solid. If there’s fierce competition in your area for homes, a seller isn’t going to take your offer seriously if you don’t have one.

That said, preapproval is still one of those initial steps. Read on as experts at Robert DeFalco Realty discuss the preapproval process and how it works.

Understanding Preapproval

When a person applies for a preapproval, the lending party tells them:

  • The type of loans they’re eligible for
  • How much they can borrow
  • What the rate can be

To get a preapproval needed to put on offer on a home, you need to present certain financial documents such as tax forms and bank statements. “In my experience, sellers won’t even consider an offer, if its not backed by proof of funds or a preapproval” said Robert DeFalco.  A lender will also perform a hard credit inquiry to know your credit score. Once it’s done, you’ll see this on your credit report, which may temporarily affect it. The lender will let you know the impact it will have but most of the time it is minimal. Also, the credit bureaus also allow for buyers to loan shop with multiple lenders, only affecting their score once if done within a certain amount of time. That being said, people also prefer applying for a preapproval with multiple lenders.

In fact, it’s something we would recommend! Get these letters from multiple companies, so you know the best option.

Preapproval Goes Through – Now What?

Once your preapproval is issued, you have the option to have the interest rate locked for 90 to 120 days. Even if the interest increases during this period, you’ll get the promised rate. However, speaking to your Realtor and Lender about your timeline is important. Locking in too early can cost you money.This is why great communication between your Lender, Realtor and yourself can help make the process of buying a home a smooth one.

Whether you lock your rate or not, you can then send your preapproval to your Realtor to have on hand in the event you want to put in an offer.

Understanding the Difference Between Prequalification and Mortgage Preapproval

Prequalification and mortgage preapproval are the initial steps of the home buying process. They’re a way lenders tell you the terms of your mortgage, but they do have a few key differences.


If you need a short and quick answer about how much you can get, you may prefer getting a mortgage prequalification. Several financial institutions will have a tool on their website on which you’ll only have to put in your income, assets, and debts. Based on that information alone, you can estimate the amount you can get approved for.

A prequalification usually only takes two or three minutes, and it can be done through the phone or online.

Mortgage Preapproval

This is when the lender goes through your credit details and then confirms your stated information. Once approved, your lender will commit a mortgage to you at a fixed interest rate for a set period.

Even though your mortgage preapproval is somewhat of a promise from your lender, you shouldn’t consider it a guarantee. When it’s time to close, the lender will run a final check to validate if your financial history has changed after receiving the preapproval. The lending party may also want to appraise your house, as the valuation of your home can also impact the mortgage.

How Do I Get Preapproval for a Mortgage?

Even though it’s possible to get a preapproval online, you’ll still have to gather a few financial documents when you’re applying for a home loan. Generally, you’ll have to provide:

  • The addresses on which you’ve lived for the last two years
  • Your existing pay stubs
  • Your employer’s contact information for the last two years
  • Your W-2s for the last two years
  • Your bank statements for the past 60 days

If you have any unique income sources or credit, you may also have to provide some additional paperwork such as:

  • Proof that someone else is paying cosigned debt (like an auto loan or a student loan)
  • Divorce decree, which shows debts that an ex-spouse paid
  • A tax payment plan or any past-due federal debt
  • Bankruptcy documents
  • Proof of child support you’re paying or receiving

Different Rules Apply If You’re Self-Employed

If you own 25% or more of a business that gives you an income, you’ll be considered a self-employed borrower. You’ll have to provide additional paperwork to get preapproval on your mortgage. Since your income isn’t guaranteed, a lender may take more time to assess whether your income is stable and if they should hand you the loan or not. Essentially, they’re trying to gauge your payback ability.

A lender offering mortgages to self-employed people will typically consider an average of your earnings that you report on your tax returns. They will consider this amount for the last two years. They can also analyze the tax returns of your business to know if your company is stable. They may also ask for profit and loss statements and letters and statements from a Certified Public Accountant (CPA). These letters will explain how you receive your income.

When Should I Go for a Mortgage Preapproval?

You should consider getting a mortgage preapproval if you’re seriously considering making an offer on a house you like in the next two months. A preapproval letter will be good for 30 to 60 days, according to the Consumer Financial Protection Bureau (CFPB) website. If it takes you longer than two months to yourself a home, the lender will have to update your preapproval letter with recent bank statements and pay stubs. Only go for a preapproval letter when you have your eyes set on a property to save yourself from the hassle. If your house hunts go on for more than three months (or 90 days), your lender may also have to pull a fresh credit report, directly impacting your credit score.

Here’s How Robert DeFalco Realty Can Help

Preapproval letters are a crucial stage of the home buying process, and without one, a seller may not take your offer seriously. At Robert DeFalco Realty, we don’t just help you with negotiations and homes. We can also help you connect with lenders who can help you go about the preapproval process smoothly.

If you’re considering buying a home and are new to the process, let us take the wheel. We’ve been doing this for a long time and have the best people working for us. Consider visiting our offices in New York, or you can also call us at 718-987-9700.