How to Get Pre-Approved for a Mortgage

You’ve made the big decision: You’re ready to buy a home! What’s next? A great first step is to receive a mortgage pre-approval. What is a pre-approval, what are its benefits and how can you get one? Read on to learn all about this important piece of the home purchasing and financing process.

What Is a Mortgage Pre-Approval?

If you’re like most homebuyers, you’ll be looking to finance your new home. But maybe you’re not sure how much you’ll be able to borrow. This is where a pre-approval comes in.

A pre-approval is a lender’s written verification of your eligibility for a loan for a specific amount based on your current financial circumstances. It’s a good faith estimate of the amount you’ll likely be able to borrow.

The pre-approved amount depends on factors such as your financial stability and whether the property meets the lender’s criteria. While a pre-approval is a good indicator of your borrowing power, it’s not a final guarantee of loan approval. Your loan is only considered finalized once the lender completes a full underwriting process after you’ve found a home.

How Long Does Pre-Approval Take?

With a Pennymac Pre-Approval, you can often work with a Loan Expert and complete the process — and receive your pre-approval the same day.

Pre-Qualification vs. Pre-Approval

Pre-qualification and pre-approval are sometimes used interchangeably. While both help you estimate your potential loan amount, there’s a difference between these two terms.

Pre-qualification involves a relatively informal review of your finances, often based on self-reported information. It provides a rough idea of the mortgage amount you may qualify for.

Pre-approval, on the other hand, involves a thorough verification of your financial documents and credit, giving you a more accurate picture and a stronger advantage when making an offer.

Why Getting Pre-Approved Is Important

Obtaining a pre-approval has many benefits that can help facilitate the home-buying process and make it a more positive experience.

Enjoy Peace of Mind as You Shop for a Home

A pre-approval identifies the loan amount you are likely to qualify for, allowing you to limit your search to homes that fit within your budget. You can avoid looking at and falling in love with homes out of your price range.

And remember, just because you’re pre-approved for a certain dollar amount doesn’t mean you have to borrow the entire sum. You’ll also want to consider other expenses associated with homeownership, such as taxes, association dues and new home furnishings, so leaving some wiggle room in your monthly budget could be useful.

Get Ahead of Competing Buyers

Many sellers prioritize accepting offers from potential buyers who have been pre-approved over those who are only pre-qualified. It shows that you’re a serious, credible homebuyer who can likely secure adequate financing to proceed with the purchase.

Move Faster on Your Offer

Found a perfect home? Since you already know what you can afford, you can make an offer immediately — a big plus in a competitive market.

What Lenders Look at During a Pre-Approval

When you apply for mortgage pre-approval, lenders take a detailed look at your financial picture to understand how likely you are to repay a loan. Pre-approval involves a thorough review of your credit, income and financial history so you can enter the home search with real clarity. Here are some of the key factors lenders typically consider:

• Credit profile. Your credit history and score help lenders see how you’ve managed debt in the past and the likelihood you’ll stay current on a mortgage.
• Income and employment. Stability and documentation of income (pay stubs, tax returns or statements if you’re self-employed) help demonstrate your ability to cover monthly payments.
• Debt. Lenders look at your existing debts alongside your income to gauge how much of your monthly budget is already committed to other payments.
• Assets and savings. Bank and investment account statements show your available funds for a down payment, closing costs and reserves.

How to Prepare for Your Pre-Approval

Proper preparation for your pre-approval can help set you up for success. Here are some things you can do as you get ready to begin your home search.

Check Your Credit

Request your credit reports from all three major bureaus (Equifax, TransUnion and Experian) and review them carefully. If necessary, consider taking steps to improve your credit score, like paying down debts and consistently making on-time payments. Dispute any errors you find. To request your free credit reports, visit AnnualCreditReport.com.

Evaluate Your Savings

Determine how much you have available for a down payment and closing costs. Remember, closing costs can add up to 2-5% of the home’s purchase price. If you’re receiving gift funds, ensure you have the necessary documentation.

Create a Realistic Budget

Analyze your income and expenses to establish a comfortable monthly mortgage payment. Use an online mortgage calculator to explore different scenarios and understand how factors like interest rates and loan terms impact your payments.

Educate Yourself

Familiarize yourself with common real estate and mortgage terminology. Research different loan types, interest rates and terms to make informed decisions during the pre-approval process.

Gather Your Documents

Be prepared to provide your lender with proof of income, assets and debts. This typically includes recent pay stubs, bank statements, tax returns and asset statements.

In some cases, the process can be simplified by reducing the documentation required. With Pennymac, income and asset information may be verified digitally during the application, depending on your situation, which can limit the need to gather pay stubs or bank statements. If you’re selling a home and using the net equity toward your next purchase, asset documentation may also be reduced.

Choosing the Right Lender

After assessing your credit, savings and budget, it’s time to choose a lender and begin the pre-approval process. Consider the following as you start to compare lenders:

• Loan options. Your lender should offer a variety of home loan options, including conventional fixed-rate loans, adjustable-rate mortgages (ARMs), jumbo mortgages, FHA and VA loans.
• Industry reputation and customer service. Evaluate the lender’s standing in the industry and approach to supporting borrowers.
• Origination fees. When comparing options, ask each lender how their origination fees are structured and what costs are included, so you can evaluate the total cost of the loan.
• Special offers. Consider lenders that have special money-saving offers. For example, Pennymac gives you several ways to save that can help open the door to your new home:
  • $1,000 when you close:** Take the first step with a free pre-approval and get a $1,000 bonus at closing.
  • 1% off your rate for 1 year:* Enjoy lower monthly payments for the first 12 months of your new mortgage with a rate buydown.
  • $2,000 when you refi later:¹ Get your new home’s mortgage with Pennymac and receive $2,000 when you refinance that loan within 3 years.
  • $350 to $9,500² cash back: Connect with a top real estate agent and save when you buy, sell or both.

The Pre-Approval Process

You’ve checked your credit, assembled your documents and settled on a lender. Now, let’s kick-start your pre-approval process with these steps:

1. Complete a mortgage application with a lender.

Step one is to complete a mortgage application. A Pennymac Loan Expert can guide you through the entire experience.

2. Submit documents that will provide an overview of your finances.

Required documents will vary by lender, but might include:

• Recent pay stubs
• W-2 forms and 1099 statements
• Bank statements
• Statements for other assets, such as stocks, bonds, IRAs and 401ks
• Additional documents related to income, like child or spousal support, rental property income or gift funds

3. Wait for documentation review

For a pre-approval, the lender will review your credit, income, and available cash to confirm you can cover upfront costs.

4. Receive your pre-approval.

Upon your lender’s review, you’ll receive a pre-approval confirming you’re likely to be able to borrow a designated amount. While it’s not a loan finalization, it is a significant move in that direction.

5. Begin your house hunting with confidence!

With a pre-approval in hand, you’ll know which homes fit your budget and be ready to make an offer.

How Your Home Type May Affect Your Pre-Approval

The type of home you’re buying can influence your mortgage options, approval requirements and how your offer is received by sellers.

• Condos: Mortgages for condos often require additional lender review of the HOA’s finances, insurance and occupancy rates. High HOA fees count toward your monthly housing costs used in pre-approval calculations, and many lenders won’t finance non-warrantable condos.
• Single-family homes: These homes are typically the easiest property type to finance, with fewer property-level restrictions and broader loan eligibility reflected in a pre-approval.
• Multi-unit homes (2–4 units): Multi-unit properties may involve higher down payment or reserve requirements. This can affect the loan amount or terms included in a pre-approval, even when rental income is considered.
• Manufactured or non-traditional homes: Some loan programs limit eligibility based on construction type, condition or foundation requirements, which can narrow the loan options tied to a pre-approval.
• Loan program fit: Government-backed loans, such as FHA loans, often have stricter property condition standards. These requirements can affect pre-approval terms, and some sellers may prefer conventional financing due to fewer property condition requirements.

After You’re Pre-Approved: What to Do (and Avoid)

After receiving your pre-approval, it’s important to maintain financial stability. This helps ensure your pre-approval remains valid.

Continue Good Credit Habits

Your pre-approval is based on your current financial profile, including your debt-to-income ratio and credit history. Taking on new debt, opening additional credit accounts or co-signing loans can change those numbers and impact the terms you were initially approved for. Continue paying all bills on time and keep your financial profile stable.

Keep Up Your Savings

Refrain from withdrawing funds earmarked for your down payment, closing costs or other new home expenses. Keep saving as much as possible.

Avoid Job Switches

Maintain your current employment, as any changes could potentially affect your perceived income stability.

Be Transparent With Your Lender

If you experience any changes that could impact your financial situation, be upfront with your lender. Your lender may be able to reassess and potentially adjust your loan terms before you get too deep into the home-buying process.

Why Might a Pre-Approval Not Lead to Final Approval?

Some factors that could affect whether you get final approval on your loan include:

• Changes to your financial situation, such as employment loss and major changes to your credit score
• Differences between the information provided and what’s later verified during the review process.
• Property issues, like significant problems uncovered during the home inspection, low appraisal value or zoning issues

From Pre-Approval to Homeownership

With this important calling card in hand, you can shop for your new home with confidence. If you’re ready to embark on your own homebuying journey, set yourself up for success with a Pre-Approval from Pennymac. Connect with a Pennymac Loan Expert today to get started.

Mortgage Pre-Approval FAQs

Does a Pre-Approval Affect Your Credit Score?

With a Pennymac Pre-Approval, your credit score is unaffected. It involves a soft credit pull, which lets Pennymac review your credit profile for pre-approval purposes without triggering a hard inquiry or potentially lowering your score. That said, other lenders or certain situations may require a hard credit pull.

How Long Does a Mortgage Pre-Approval Last?

A pre-approval usually has a limited validity period, often 60 to 120 days (a Pennymac Pre-Approval is good for 120 days). And if you don’t find a home within that set period, you’ll likely have the option to extend or renew it, likely requiring another credit pull. You’ll want to discuss pre-approval extension options with your lender.

*Get 1% off your rate for 1 year: In eligible fixed-rate purchase loan transactions, Pennymac will pay 1% of the note rate for the first 12 payments of the loan. This offer effectively reduces the rate of the loan by 1% for the first year of the mortgage. The payment of 1% by Pennymac will be accomplished through a custodial escrow account, to be funded by the lender-paid credit. The amount totaling the difference of 1% between the note rate and the temporary buydown rate will be dispersed to the escrow account, and the funds will be dispersed from the escrow account to the investor to account for the difference in interest during the buydown period (the first 12 months of the loan). The offer excludes VA, Jumbo, Closed-End Second and Adjustable-Rate Mortgages, refinance, investment property, third-party and in-process loans. The offer cannot be redeemed for cash or credit and is non-transferable. Occupancy restrictions may apply. Pennymac reserves the right to change or cancel the offer at any time, without notice. Additional restrictions or conditions may apply.

**Customers who have obtained a Pre-Approval from Pennymac prior to locking any Pennymac purchase loan get $1,000 applied as a discount off total closing costs and/or principal curtailment, subject to investor guidelines. Excludes Jumbo, refinance, third-party and in-process loans. Offer subject to change or cancellation without notice.

¹Receive a $2,000 credit to use for a refinance within 3 years: Pennymac customers who close on a new purchase loan ("Original Purchase Loan") with Pennymac are eligible for a $2,000 credit on a refinance with Pennymac for the same property, subject to investor guidelines. Offer qualification period: The offer applies to Original Purchase Loans funded on 11/14/2023 through Original Purchase Loans locked by 12/31/2026. Customers must apply for the refinance loan and lock in a rate within three years of the funding date of the Original Purchase Loan to qualify. Credit may be applied as a discount off total closing costs and/or for principal curtailment of the refinance (standard costs and fees apply to the refinance transaction). This offer cannot be combined with another lender credit offer, and may only be used once. Excludes Jumbo, Closed-End Seconds, third-party and in-process loans. Offer subject to change or cancellation without notice.

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