Couple talking with mortgage broker

Mortgage preapproval: What you need to know

Do you know what the first step is after making the decision to purchase a new home? It’s not finding a real estate agent, or even starting an online search. Working with a lender to learn how much home you can afford is the critical initial step to take before looking for the home of your dreams. By getting pre-approved today, you can shop with confidence tomorrow. Think of a mortgage preapproval as your ticket to go out into the real estate market with confidence.

Mortgage pre-approval letter vs. pre-qualification letter: How they differ

According to the Consumer Finance Protection Bureau, there’s not much difference between getting pre-approved or pre-qualified for a mortgage. “In practice both terms refer to a letter from a lender that says the lender is generally willing to lend to you, up to a certain amount and based on certain assumptions.” What’s important is that the lender puts in writing that you are pre-approved for a loan up to a specific loan amount.

What’s included in a pre-approval letter

Mortgage resource HSH identified five items typically included in a mortgage preapproval letter:

  1. Loan program
  2. Loan type
  3. Loan amount
  4. The purchase price
  5. The qualified interest rate

Why is mortgage pre-approval important?

Pre-approval for a home loan typically costs you nothing but gives you a goal of what homes are in your affordability range, as well as how much money you should look to have saved for a down payment. Having a mortgage pre-approval letter helps limit your house search to homes within your means, and can make your offer and negotiations easier. A mortgage pre-approval letter also shows a seller that you’re serious about buying a home. Without this letter, you could lose out on your dream home since many sellers require a pre-approval letter with your bid.

How mortgage pre-approval is determined

Mortgage lenders will check your credit as well as look at your earnings, debts and savings. It’s important to note that a mortgage pre-approval letter doesn’t guarantee a home loan. For example, if mortgage rates rise or your credit score changes you may need to go through the pre-approval process again.

Understanding the mortgage pre-approval process

Step 1: Start by gathering some important basic financial information. This includes your gross monthly income before taxes (include all sources if more than one) plus your total monthly debt payments such as car payments, credit card minimums, child support payments and student loan payments. Monthly debt payments do not include utility bills, rent or other debts that will be paid off that month or will disappear once you purchase the home.

Step 2: Once you have your most current documentation gathered, use the Guild Mortgage loan pre-approval calculator to help determine affordability. Our free calculator will indicate whether you meet minimum requirements for a home loan as well as give you a total monthly payment and amount–broken down into principal, interest, taxes and insurance detail–that you can afford based on the information you provided.

Step 3: Don’t wait until you’re ready to buy a home to get pre-approved for a mortgage. Doing so online is a great way to start. The earlier you begin the process, the better in case you have potential issues with your credit that need to be corrected. Now is the time to connect with a knowledgeable residential loan officer in your community to find out where you stand and get one step closer to home ownership goals.

The above information is for educational purposes only.


What’s the difference between a prequalification letter and a preapproval letter? – Consumer Financial Protection Bureau

What is a preapproval letter –

Is a Mortgage Pre-Approval Letter Necessary To Make An Offer on a House? –

By |Published On: April 2nd, 2019|Categories: Mortgage 101|

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About the Author: Guild Mortgage

Founded in 1960 when the modern U.S. mortgage industry was just forming, Guild Mortgage Company is a nationally recognized independent mortgage lender providing residential mortgage products and local in-house origination and servicing. Guild’s collaborative culture and commitment to diversity and inclusion enable it to deliver a personalized experience for each customer. With more than 4,000 employees and over 250 retail branches, Guild has relationships with credit unions, community banks, and other financial institutions and services loans in 49 states and the District of Columbia. Guild’s highly trained loan professionals are experienced in government-sponsored programs such as FHA, VA, USDA, down payment assistance programs and other specialized loan programs. Guild Mortgage Company is a wholly owned subsidiary of Guild Holdings Company, whose shares of Class A common stock trade on the New York Stock Exchange under the symbol GHLD.