Buying a home is one of life’s biggest financial milestones—but navigating the mortgage process can feel overwhelming, especially if you're unsure where to begin. One of the smartest early moves? Securing mortgage preapproval.
Mortgage preapproval can give you an edge in competitive markets, help clarify your homebuying budget, and streamline the entire process. In this guide, you’ll learn how mortgage preapproval works, the key factors lenders evaluate, and how to position yourself for success—all while protecting your financial reputation and building your credit history.
What is Mortgage Preapproval and Why It Matters
A mortgage preapproval is a written statement from a lender indicating how much they may be willing to lend you based on your financial profile. It’s not a loan guarantee, but it shows sellers that you’re a serious buyer with preliminary financing lined up.
Benefits of Mortgage Preapproval:
- Strengthens your offer when bidding on a home
- Clarifies your home shopping budget
- Speeds up the mortgage approval process once you find a home
- Shows sellers you’re financially prepared
Many sellers even require a preapproval letter before accepting an offer—making this step essential.
Factors That Impact Mortgage Preapproval
Mortgage preapproval isn’t based on guesswork—lenders carefully assess your financial health to determine your eligibility. Here are the primary factors:
Debt-to-Income (DTI) Ratio
Your DTI ratio compares your total monthly debt payments to your gross monthly income. Lenders prefer:
- Front-end DTI (housing-related costs only) under 28%
- Back-end DTI (all debts) under 43%, though conventional loans may allow up to 50% in certain cases
Lower DTI ratios demonstrate you can manage additional mortgage payments responsibly.
Loan-to-Value (LTV) Ratio
The LTV ratio compares your loan amount to the appraised value of the home. A lower LTV indicates less risk for the lender.
- Conventional loans often require 80% LTV or lower to avoid mortgage insurance
- FHA, VA, and USDA loans may allow higher LTVs with additional protections like insurance premiums or funding fees
Credit History and Credit Scores
Lenders evaluate your credit report to assess your borrowing history and risk level.
- Conventional loans typically require a score of 620+
- FHA loans may allow scores as low as 580 with a 3.5% down payment
- VA and USDA loans often require scores in the 600s, depending on the lender
Understanding your credit history before applying helps prevent surprises.
Income and Employment Stability
Lenders review your income through pay stubs, W-2s, tax returns, and proof of additional earnings like bonuses or rental income. While two years of stable employment is preferred, recent job changes aren’t always disqualifying—especially for high-demand industries or promotions.
Self-employed applicants may need extra documentation, such as profit and loss statements.
How to Prepare for Mortgage Preapproval
Being proactive boosts your chances of preapproval—and favorable loan terms. Here’s how to get ready:
1. Review Your Credit History
Lenders pull your credit report when you apply for preapproval. Check your credit history in advance to:
- Spot errors or inaccuracies
- Address derogatory marks
- Understand your credit standing
Tip: Consider using a platform like Ava Finance to monitor your credit history, access your reports, and learn about your financial profile. Ava provides tools to help support credit history improvement, including reporting eligible rent and utility payments to major credit bureaus. Approval for Ava’s products is not guaranteed—see full details and terms at meetava.com.
2. Calculate Your Debt-to-Income Ratio
Lenders rely on your DTI to assess affordability. If your ratio is high, paying down debts—especially revolving credit like credit cards—may improve your profile.
3. Gather Financial Documents
Expect to provide:
- Pay stubs
- Tax returns and W-2s
- Bank and investment statements
- Proof of additional income
- Identification documents
- Employment verification (especially for self-employed borrowers)
Having paperwork ready helps prevent application delays.
4. Compare Lenders
Shop around for the best mortgage rates and terms—getting multiple preapprovals within a 45-day window typically only counts as one hard inquiry on your credit.
Consider factors like:
- Interest rates
- Fees and closing costs
- Loan types offered
- Lender reputation
Steps to Get Mortgage Preapproved
Once prepared, follow these steps:
Step 1: Submit Your Preapproval Application
Apply online, by phone, or in-person. Provide personal details, financial documentation, and consent for a credit check.
Step 2: Lender Review and Credit Pull
The lender reviews your information and pulls a tri-merge credit report from Experian, TransUnion, and Equifax.
Step 3: Receive Your Preapproval Decision
Preapproval can take 1-3 days. Once approved, you’ll receive a letter outlining:
- Maximum loan amount
- Loan type and terms
- Interest rate estimates (subject to change)
When to Apply for Preapproval
Time your preapproval strategically:
- Before house hunting: Sellers often require a preapproval letter to accept offers.
- Within 60-90 days of purchase: Preapproval letters typically expire after this window.
If your letter expires, you’ll need to update your documents and undergo another credit check.
What to Do After Preapproval
Once preapproved:
- Obtain your preapproval letter
- Hire a buyer’s real estate agent
- Shop for homes within your budget
- Make offers with updated preapproval letters matching the offer amount
- Finalize your mortgage application after your offer is accepted
- Compare final loan rates from different lenders
- Complete underwriting, inspections, and appraisals
- Sign final loan documents and close on your home
Prequalification vs. Preapproval: Know the Difference
Prequalification:
- Informal estimate based on self-reported information
- No credit pull required
- Helps gauge affordability
Preapproval:
- Formal lender review with credit check
- Provides verified loan estimates
- Strengthens purchase offers
For serious buyers, preapproval offers stronger advantages and credibility with sellers.
Building Credit History with Ava Finance Before Homeownership
If your credit history needs improvement before seeking preapproval, Ava Finance offers tools to help:
- Report eligible rent, utility, and subscription payments to major credit bureaus¹
- Access credit monitoring and real-time alerts
- Explore resources to understand your credit history
While specific results vary and are not guaranteed, Ava can help support efforts to strengthen your financial profile.
Disclosures: Approval for the Ava Credit Builder Card or Save and Build Account is not guaranteed. Linking your bank account via Plaid is required. Failure to maintain Plaid connection may result in product termination. Ava reports your payment activity to major credit bureaus, but outcomes may differ across bureaus. Improvements to your credit history cannot be guaranteed. Full terms available at meetava.com.
Final Thoughts: Use Mortgage Preapproval to Your Advantage
Getting preapproved for a mortgage is a vital first step toward homeownership—providing clarity, credibility, and confidence. By understanding your financial readiness, comparing lenders, and building your credit history, you’ll be well-positioned for success.
Platforms like Ava Finance help support credit history improvement before you apply, providing essential tools and resources to manage your financial reputation.
Start preparing for homeownership today—learn more at meetava.com and take control of your mortgage journey.
