Homeownership is a primary goal for many Americans, but it’s not an easy one. Unless you can pay for your new home in cash, you need a mortgage. And in competitive housing markets, you need to move fast when you find a home that fits both your needs and your budget.

One of the best ways to be prepared is getting a mortgage loan preapproval. This serves two purposes: It lets buyers know how much they can expect to borrow, and it lets real estate agents and sellers know a buyer can get the funding needed to close a sale.

What Is Mortgage Preapproval?

Mortgage preapproval is as close to having a loan in hand as you can get without actually being approved for one. That’s because the preapproval process requires a potential borrower to fill out a mortgage application.

Preapproval can take one to three days and gives lenders a lot of insight into a potential borrower’s creditworthiness, says Linda McCoy, who is the president of the National Association of Mortgage Brokers board of directors and based in Mobile, Alabama.

After reviewing your finances, the lender will provide a letter stating the loan amount that it expects to approve you for. The lender usually will specify the type of loan you qualify for, and the interest rate it expects to offer.

Once you’re preapproved, the letter is good for 60 to 90 days, after which you’d need to reapply.

Is pre-qualification the same as preapproval?

While they may sound like the same thing, the preapproval and pre-qualification mortgage processes are different.

When you pre-qualify for a home loan, it’s an informal estimate of the size and scope of a potential mortgage, based on a lighter review of your finances and a soft credit check. Pre-qualification could give you a good idea of how much you can expect to borrow, and what type of mortgage you may want to consider.

It makes sense to get a pre-qualification at the start of the homebuying process, and move on to preapproval when you’re closer to being ready to buy.

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When Do You Need Mortgage Preapproval?

Exactly when you should seek mortgage preapproval is a matter of opinion.

“It is important to know where you stand,” says A.J. Barkley, a neighborhood and community lending executive with Bank of America based in the Dallas-Fort Worth metroplex. “We recommend that prospective homebuyers seek preapproval once they are serious about looking for a home to purchase.”

According to McCoy, the best time to seek preapproval is “if you are planning to buy in the next two or three months.”

Planning your preapproval allows you to act right away when you find the right house.

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How To Apply For Mortgage Preapproval

If you want to know how to get approved for a mortgage, be prepared for the following steps.

1. Gather your paperwork

When filing for a mortgage preapproval, you’ll want to have the proper documentation ready. That includes W-2 forms, tax returns, proof of assets, employment verification, and identification such as a driver’s license or Social Security number.

2. Research different mortgage companies

No two mortgage companies are the same. Each will offer different loan terms, so it’s worth your time to shop around and apply with multiple lenders to be sure you’re getting the best deal. Also take the time to learn about each financial institution’s reputation for customer service, as you’ll be working with your lender for many years.

3. Decide what type of mortgage you need

There are many loan types out there, so find one that fits your needs. You’ll want to explore fixed-rate vs. adjustable-rate mortgages, 15-year vs. 30-year terms, and whether you qualify for a government-backed mortgage, such as a Federal Housing Administration loan, a Veterans Affairs loan, or a U.S. Department of Agriculture loan.

4. Plan when you’ll get preapproved

Once you apply for preapproval, it’ll take a few days before the lender makes its decision. Since the letter will only be good for up to 90 days, you should plan accordingly and get preapproved as close as possible to the time you expect to make an offer on a home.

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Factors Affecting Preapproval

Like with any application process, there are multiple factors that determine the outcome. Here are a few key markers that lenders will review when you apply for a mortgage preapproval.

Credit score and history

Your credit score is an important metric that measures how trustworthy you are as a borrower. If your credit isn’t great, you may want to spend some time boosting your score before buying a home. Different loan types have varying minimum credit scores, but conventional loans — which are the most common — typically require a score of at least 620.

Debt-to-income ratio

Your debt-to-income ratio shows how much of your monthly income goes toward paying debts. You can calculate your DTI by adding up all your monthly debts and dividing by your gross monthly income. Lenders usually prefer borrowers to have a ratio of 43% or less.

Loan-to-value ratio

The loan-to-value ratio compares how much you’re borrowing versus how much the property is worth. The more you offer as a down payment, the lower your loan-to-value ratio will be, the more attractive a borrower you’ll be to lenders, and the more you’ll save on interest over the life of your loan.

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What To Expect From the Preapproval Letter

Once you’ve received your preapproval letter for a mortgage, you can prove to sellers that you’re making a serious offer to buy their home.

You’ll also learn key information about your mortgage options. The letter will provide details on your loan type, your qualified interest rate, whether the interest rate will be fixed or adjustable, how long you’ll take to repay the loan, and how much you could borrow.

Once you receive your mortgage preapproval letter, it’s imperative that you make no major changes to your financial situation.

“Don’t change jobs or quit if you can avoid it. Don’t buy a car. Don’t rack up the credit card bill. Don’t move,” says Evan Rosenblum, a Los Angeles-based Realtor for Jason Mitchell Real Estate. “Keep things status quo as much as possible as any major change could have a major impact on your approval status.”

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Mortgage Preapproval FAQ

Check out the answers to these frequently asked questions about getting preapproved for a mortgage.

Does getting preapproved hurt your credit?

Getting preapproved for a mortgage comes up as a hard inquiry on your credit report. Though a hard pull is considered a negative mark on your credit report, it affects your score for no more than a year, and drops off your report entirely after two.

Do you have to get preapproved for a mortgage?

Though not required, a mortgage preapproval letter is strongly suggested because it shows real estate agents and sellers that you’re a qualified buyer. Many sellers refuse offers from potential buyers if they lack mortgage preapproval.

Does a mortgage preapproval mean you’re approved?

No. All a mortgage preapproval does is let you know how much a lender expects to let you borrow to buy a house, as well as the types of mortgages you have access to.

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The Bottom Line on Mortgage Preapproval

The road to homeownership is long, with many necessary steps along the way. Though it won’t guarantee that you’ll land the house of your dreams, completing the mortgage preapproval process lets you know how much you could afford while showing sellers that you mean business. By planning for preapproval, you can make sure you’ll be better prepared to buy a home when the time is right.