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How to Get a Pre-Approval Letter for a Mortgage Loan

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When in the market to purchase a home one of the best things you can do is to get pre-approved for a mortgage loan. Getting pre-approved helps you prove to real estate agents and sellers that you’re a serious buyer who is fully ready to purchase a home.

A pre-approval is basically a promise from the lender that you’re qualified to borrow up to a certain amount of money at a specific interest rate. In fact, some sellers require buyers to submit a pre-approval letter with their offers, though having a pre-approval letter does not guarantee that your offer will be accepted by a seller.

Check your credit reports first

Before you visit a mortgage lender check your credit reports first. You can get a free credit report from each of the major credit bureaus, Experian, Equifax and Transunion, once a year from annualcreditreport.com. If you want your FICO scores you can purchase them at myfico.com. Clear up negative credit accounts, mistakes or inaccurate information on your credit reports.

Research several lenders

Pre-Approval involves lenders pulling your credit reports. This means hard inquiries will have to be performed by the mortgage lenders. But you don’t have to worry about the negative effects of multiple inquiries as long as they are performed within a certain timeframe. For example:

  • Current versions of FICO scoring formula compensate for mortgage inquiries made in any 30 day span prior to scoring and are counted as one inquiry.
  • For FICO Scores calculated from older versions of the scoring formula, the shopping period is any 14 day span to have multiple inquiries count as one inquiry.
  • For the few lenders using the newest versions of the FICO scoring formula, this shopping period is any 45 day span to have multiple inquiries count as one inquiry.

Because each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use there is no one set time-frame for mortgage rate shopping to count as one inquiry.

How to get the pre-approval letter

To get a pre-approval letter, it means that a lender has reviewed employment, credit and financial history to determine which loan programs you qualify for, the maximum amount that you can borrow, and the interest rates you will be offered. Most lenders have an automated pre-approval system that goes something like this:

  • Submit basic information about your financial history. If you have a co-borrower, the lender will also need this information about them. Provide your last two years’ tax returns and W-2s, your most recent pay stubs and bank account statements.
  • Give permission to pull your credit report (and your co-borrower’s, if you have one).
  • Each lender has its own standards and processes for determining whether to grant a pre-approval letter. But generally, the automated underwriting system will deliver a pre-approval letter within minutes, and will list any conditions that need to be met for full approval.

Although there is no guarantee a pre-approval letter will lead to an actual mortgage loan, it will help you stand-out as a credible buyer to home sellers. If you make an offer on a house without a pre-approval, your offer may not be taken as seriously as an offer from another person with a pre-approval.

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