From Dreaming to Shopping: A Homebuyer’s Guide to Mortgage Pre-Approval
Every home search begins with a dream. Maybe it’s a big kitchen filled with family on the holidays, a backyard for summer barbecues, or finally having a place that’s yours after years of renting. This dreaming stage is natural — and it’s exciting.
But once you shift from dreaming to shopping, the conversation changes. Now it’s not just about what you’d like in a home, but what you can realistically buy. Sellers and agents won’t just ask what you want — they’ll want to know if you’re financially prepared to follow through. That’s where pre-qualification and pre-approval come in.
These steps transform you from a casual browser into a serious buyer. They tell you, and everyone else in the process, that you have the financial backing to move forward. Before you set foot in that dream home, understanding when and how to get pre-approved — and what it means for your buying power — is essential.
If you’re still figuring out how much you should spend, make sure to check our guide on How Much House Can You Really Afford?. That’s the foundation. Once you know your range, pre-approval gives you the green light to shop confidently.
Pre-Qualification vs. Pre-Approval
You can shop around at two different levels of approval: Pre-Qualification and Pre-Approval
Pre-Qualification: What Range Is Possible?
Pre-Qualification is a quick, informal estimate of what you might qualify for.
It is the quickest to obtain any topically relies on self-reported financial information rather than detailed financial information. Some lenders may run a “soft” credit check before giving you a number.
- Usefulness:
- Good for an early ballpark figure.
- Helps you get a sense of what you can afford before you’re serious.
- Limitations:
- Weak in negotiations — sellers know it isn’t verified.
- Estimates can be far from the final approved amount.
Pre-Qualification should be used if you’re starting to think about what type of home to buy and need a rough estimate of what you can afford. If you’re actively engaged in house shopping and are ready to make an offer if the right property comes along, you should proceed to Pre-Approval.
Pre-Approval: Ok - This is Getting Serious
Pre-Qualification is a lender-reviewed, documented commitment to lend up to a certain amount, subject to final property appraisal and underwriting.
It will involve submission of financial documents to prove income or assets, and documentation around other liabilities and obligations. Lenders will also employ a “hard” credit pull at this stage.
- Usefulness:
- Strong proof of buying ability.
- Required to make competitive offers in most markets.
- Limitations:
- Requires more time and effort.
- Usually expires in 60–90 days if you don’t buy.
Pre-Approval should be obtained when you are actively looking and ready to make an offer. It signals to the seller you are a viable party and also establishes a relationship with a lender to make the closing process easier.
Some lenders can take this process a step further and run a “Verified Pre-Approval” which runs your case through the underwriting department making the pre-approval stronger.
Typical Documentation for Pre-Approval
For pre-approval, lenders typically request:
- 2 years of tax returns and W-2s/1099s
- Recent pay stubs
- 2 months of bank statements
- Statements for retirement/investment accounts
- Government-issued ID
- Residence and employment history
Best Practices
Shop Around
Obtaining a mortgage is generally a long-term commitment so you want to make sure you get it right. Lenders come in all shapes and sizes with different rates and other costs.
Get pre-approved by at least two lenders to compare rates and fees. Compare not just the interest rate, but also APR, closing costs, and loan terms.
Credit inquiries for mortgages within a 45-day window usually count as one inquiry on your credit.
Pre-approval does not lock you into one particular lender.
Stay Mortgage Ready
After Pre-Approval, you’ll want to avoid making any major changes to your financial situation if possible. Major changes can result in the pre-approval figures being altered or revoked entirely.
- Avoid new debts (car loans, new credit cards, etc.).
- Don’t move large sums of money without clear documentation.
- Keep your job consistent until after closing.
Custom Approval Letters
Once Pre-Approved, you will want to stay in communication with the lender throughout the process. As you submit offers on homes, it may be beneficial to obtain custom pre-approval letters for negotiation. Lenders can prepare letters for different price points, allowing you to tailor offers strategically.
FAQ
Pre-Approval is not a binding agreement. You can obtain multiple pre-approvals and switch lenders at any point.
Most lenders do it for free, though some may charge a small fee for the credit pull.
Pre-Approval involves a hard inquiry, which may lower your score by a few points temporarily. Multiple inquiries within a 45-day window are usually counted as one.
See How Credit Inquiries Impact Your Credit Score: Hard Pulls vs. Soft Pulls – Gilbert Wealth
Typically 60–90 days. If your search takes longer, you may need to update your documents.
Major changes (new debts, job changes, large withdrawals) can affect your approval. Always update your lender and avoid big financial moves until after closing.
Yes, it does. A larger down payment usually makes you look stronger to a lender because it lowers your loan-to-value ratio (LTV). Lower LTV can mean better rates and no mortgage insurance if you put down 20% or more.
You can change the actual down payment later during the final steps of the process.
If you can afford a higher down payment, you should use that as you can always lower the down payment amount if you’re willing to accept a higher rate or potentially higher fees.
If you can only afford a lower amount, you should use that rather than state you can afford a larger down payment.
Lenders need to verify the source of your down payment. If you receive gift funds, you’ll need a letter from the giver confirming it’s not a loan. Large, unexplained deposits in your bank account may need documentation to avoid delays.
Lenders don’t require a W-2 job specifically, but they do require proof of consistent, reliable income. If you don’t have a paycheck, you’ll need to show other sources of income or assets that demonstrate you can afford the mortgage.
Self-employed borrowers usually need to provide:
- Two years of personal and business tax returns
- Profit and loss statements (sometimes year-to-date)
- Bank statements to verify deposits
Retirees can qualify using retirement income such as:
- Social Security
- Pensions or annuities
- Required minimum distributions (RMDs)
- Investment or dividend income
If you rely on savings or brokerage accounts, lenders may use an “asset depletion” method — dividing your assets by a set number of years to calculate a monthly income equivalent.