Mortgage pre-approval

A mortgage pre-approval is a lender's conditional commitment to lend a stated amount at a stated rate for a set period, based on documents you provide. It is stronger than a pre-qualification, which is only an estimate. It is not a guarantee, and it can be withdrawn if your finances change before closing. The lowest rates are only available to the most qualified applicants.

Pre-qualification versus pre-approval

A pre-qualification is a quick estimate based on numbers you report, often without documents. It costs nothing and proves little, because the lender has not verified income, assets or debts.

A pre-approval verifies those documents and produces a conditional commitment. It takes longer and requires paperwork, and it carries far more weight with a seller because the lender has done the work.

What the lender verifies

Income, employment, assets, debts and credit history. The lender pulls a credit report, confirms income with pay stubs or tax documents, and checks that the down payment is genuinely available.

It also runs the file through an automated underwriting system that returns a recommendation. That recommendation is conditional on the information being accurate and on nothing material changing before closing.

Source: Freddie Mac Primary Mortgage Market Survey, published at freddiemac.com/pmms. These are national averages for conforming loans. What you are quoted depends on your credit profile, points paid, loan amount and property.

The published rate and the lock

Freddie Mac publishes the national average mortgage rate every week, and the table above shows the latest six readings. A pre-approval states a rate or a range, and the rate is only guaranteed once you lock it.

A rate lock holds a rate for a set period, usually against a fee or a slightly higher rate. If the lock expires before closing, the rate reverts to the market, so the lock period should cover the expected closing date with margin.

How long it lasts

Pre-approvals commonly last sixty to ninety days, though the period varies by lender. After it expires, the lender must refresh the file, which means new documents and sometimes a new credit pull.

Ask for the expiry date in writing and diarise it. A pre-approval that lapses mid-negotiation can cost the house, because the seller may not wait for a fresh approval.

What voids a pre-approval

A new job, a large purchase, a new loan, a missed payment or a changed down payment can all void it. The lender re-checks the file before closing, and a material change can reduce the amount or withdraw the offer.

The rule is simple: once pre-approved, change nothing about your finances until the keys are in hand. Do not buy a car, finance furniture or open a new card in that window.

The documents to prepare

Gather pay stubs, tax returns, bank and investment statements, identification, and proof of any other income. Self-employed applicants usually need more history, often two years of returns.

Ask the lender for the exact list before you start. A complete file moves faster, and a missing document is the most common reason a pre-approval takes longer than expected.

• Ask for the document checklist in writing before applying.
• Confirm the expiry date of the pre-approval.
• Ask whether the rate is locked and for how long.
• Confirm what would cause the lender to revisit the file.

How it strengthens an offer

A seller weighs certainty as well as price. A pre-approved buyer is less likely to fall through on financing, so the offer competes better against a higher bid that carries more risk.

In a competitive market, the pre-approval letter is often required before a viewing is granted. Having it ready lets you move when the right property appears rather than scrambling for documents.

The cost of a pre-approval

Many lenders issue a pre-approval at no cost, while some charge an application or rate-lock fee. Ask what is charged, when it is charged, and whether it is refundable if the loan does not close.

A credit pull for a mortgage pre-approval is a normal part of shopping, and multiple mortgage inquiries within a short window are usually treated as one for scoring purposes. Confirm that with the lender if you are comparing several.

Common mistakes

Applying with several lenders at once without telling them, changing jobs mid-process, and using a credit card for the deposit are the mistakes that most often derail a closing. Each one either adds an inquiry or changes the file.

Another is treating the pre-approval amount as a budget. It is a ceiling set by ratios, and the payment at the ceiling leaves no room for the costs of ownership that arrive after closing.

After the offer is accepted

The lender orders an appraisal, verifies the title, and issues a closing disclosure. Read the disclosure and compare it with the pre-approval, because the final terms are the ones that bind.

Keep paying every existing debt on time and leave the down payment where it is. Any movement in those accounts during underwriting raises questions that can delay the closing.

A checklist

Choose a lender, gather the documents, obtain the pre-approval in writing with an expiry date and a rate-lock term, and set your own budget below the approved amount. Then shop for the house.

After the offer is accepted, change nothing about your finances, respond to underwriting requests quickly, and read every disclosure before signing. That sequence keeps the pre-approval from being wasted.

What a rate lock actually covers

A rate lock covers the rate, not the fees or the approval. The lender can still change the points, the closing costs or the terms if something in the file changes, and a lock does not guarantee that the loan will close at all.

Ask what happens if the rate falls after the lock, and whether the lender offers a float-down. A float-down lets you take a lower market rate before closing, usually for a fee, and it is worth asking about in a falling market.

Sources for every figure on this page

Related reading

• Mortgage costs
• Mortgage refinance costs
• Affordability calculator
• Loan payment calculator