When buying a home using a mortgage, you have to go through the loan pre-approval process. In simple terms, pre-approval is a lender’s promise to provide the funds that a homebuyer requires. However, this promise is subject to property appraisal and interest rate terms. Here is some more information about this topic:

Mortgage Pre-Approval versus Pre-Qualification

It is important to note that there is a huge difference between mortgage pre-approval and mortgage pre-qualification. Pre-qualification is the initial step in the home buying process. It involves a potential homebuyer talking to a lender and stating his/her desire to buy house. This is in addition to supplying information such as monthly income, assets, and outstanding debts. A lender will evaluate this information and tell you how much you may qualify to borrow. However, lenders do not evaluate one’s credit history during the loan pre-qualification stage.

After pre-qualification, one can proceed to the mortgage pre-approval stage. This involves supplying a lender with as much information as possible about your financial status. Lenders usually analyze this information carefully to determine factors like:

• A borrower’s risk profile
• A borrower’s debt levels

• How much money one can afford to set aside as monthly payments for a mortgage.

With this in mind, here are some vital aspects of loan pre-approval:

Pre-approval Does Not Guarantee A Loan

The fact that you have breezed through the pre-approval process does not guarantee a loan. A lender may ask you to supply specific information such as sources of additional income or assets in foreign countries. Moreover, a lender may change the terms of your mortgage based on the additional information requested.

Factors That Lenders Consider During Pre-Approval

Credit History

To get a loan with the lowest rates in the market, you must have a good credit history. The rule of thumb is to have credit score of 740 or above. Nevertheless, you can still get a loan to buy a home even if your credit history is less than perfect (at or below 580). The problem with a low credit score is you will have to make a larger down payment. In addition, you cannot access an FHA loan if your credit score is below the 620 mark.


You have to show your lender proof of steady income. This means you have to supply a lender with pay stubs, W-2 statements for at least two years, tax returns for two years, as well as documentary evidence of additional sources of income (such as alimony).


Besides proof of income, lenders require evidence of employment. This is to ensure you are not lying about your sources of income. In general, expect a lender to call your employer to verify that you are a legitimate employee. If you run a business (self-employed), your lender will definitely require paperwork such as letters of incorporation and tax returns.

Down Payment

You will have to prove to your lender that you have money to make a down payment. Take note that mortgage down payments vary from one lender to another. Down payments for conventional loans range from 10% to 20%. However, down payments for FHA loans can be as low as 3.5%. If you cannot access an FHA loan, shop around and compare quotes from various lenders before choosing one.

Legal Paperwork

Lenders require documents such as copies of social security number and driver’s license. Remember you have to authorize your lender to access your credit report.

In summary, buying a home can be a challenge, especially if a buyer has to go through a loan pre-approval process. Lenders consider factors like documentation, credit history, income, employment history, and the ability to make a down payment before approving mortgage applications.