A mortgage preapproval letter tells you that a lender is tentatively willing to lend you money up to a certain amount based on the information it has reviewed.
That can make your offer more credible to a seller, but the letter is not final loan approval. Before using it to shop for a home, check the approved amount, loan assumptions, expiration date and any conditions that could affect financing later.
Key Takeaways
- A preapproval letter shows how much a lender may be willing to lend, but it is not a guarantee that the mortgage will close.
- Check the loan amount, property or purchase-price assumptions, loan program and expiration date before making an offer.
- Your finances and the property still have to satisfy the lender’s requirements before you receive final approval.
What does a mortgage preapproval letter mean?
A mortgage preapproval letter is a preliminary statement from a lender that it may be willing to lend you up to a specified amount.
The Consumer Financial Protection Bureau describes preapproval as tentative rather than guaranteed. The lender is making the decision based on assumptions and the financial information available at that point in the process.
A preapproval can nevertheless be useful when you begin making offers. It shows a seller that you have already discussed financing with a lender and that the lender believes you are likely to qualify for a mortgage within the parameters shown in the letter.
It also gives you a financing ceiling to work with, although the amount a lender is willing to approve does not necessarily equal the amount you should spend.
What information should you check on a preapproval letter?
The exact format varies by lender, but there are several pieces of information worth reviewing carefully.
| Item | What it tells you | What to check |
|---|---|---|
| Borrower name | Who the lender evaluated | Make sure all borrowers who should be included are listed correctly |
| Maximum loan or purchase amount | The financing level the lender currently believes you may qualify for | Confirm whether the figure refers to the loan amount or purchase price |
| Loan type | The mortgage program assumed in the preapproval | Check whether it is conventional, FHA, VA or another program |
| Down payment | How much cash the lender assumes you will contribute | Make sure it matches what you actually intend and are able to put down |
| Conditions | Requirements that still must be satisfied | Look for references to income, assets, credit, property approval or other verification |
| Expiration date | How long the lender considers the letter current | Find out when you need an updated letter if your home search continues |
If anything is unclear, ask the lender what assumptions it used. A preapproval is much more useful when you understand exactly what the number represents.
Does the preapproved amount mean that’s what you should spend?
No. A preapproval tells you what a lender may be willing to finance, not what fits comfortably into your personal budget.
Lenders evaluate factors such as income, debts, assets and credit. Your own budget also has to account for expenses that may not determine whether you qualify for the loan.
Those can include maintenance, utilities, child care, transportation, savings goals and other recurring costs.
If your lender preapproves you for more than you intend to spend, you do not need to raise your budget. Movoto’s home affordability guide can help you evaluate the home price that fits your broader finances rather than simply using the maximum amount available.
Does a preapproval guarantee your mortgage?
No. Preapproval happens before final mortgage approval.
The lender may still need to verify or reverify your income, employment, assets, debts and credit. The property itself also has to satisfy the requirements of the loan program and lender.
That means a borrower can be preapproved and still encounter a problem later in underwriting.
Common reasons the financing can change include:
- Your income or employment changes.
- You take on additional debt.
- Your credit profile changes.
- The information you provided cannot be verified.
- The property’s appraisal or other characteristics create an underwriting issue.
- The loan amount, down payment or mortgage program changes.
Avoid making major financial changes while you are shopping for a home unless you have discussed them with your lender.
Does your preapproval letter include an interest rate?
It may, but do not assume that any rate shown is locked.
Mortgage rates can change throughout the home-shopping process, and a preapproval often occurs before you have selected a property or locked an interest rate.
If a rate appears in the letter, ask whether it is simply an assumption used to calculate qualification or whether there is an actual rate-lock agreement.
A change in rates can also affect affordability. If rates rise while you are shopping, the same loan amount generally produces a higher principal-and-interest payment.
Is a preapproval letter the same as a prequalification?
Not necessarily, but the terminology is not standardized.
The CFPB says lenders use the terms prequalification and preapproval differently. Some lenders may call a preliminary review a prequalification and reserve preapproval for a more detailed review, while others use different terminology.
Instead of judging the letter by its name, ask what the lender actually reviewed.
Questions worth asking include:
- Did you review my credit?
- Did you verify my income and assets?
- What documentation is still outstanding?
- What assumptions did you use to determine the amount?
- What could cause the preapproval to change?
Those answers tell you more than whether the document says “preapproved” or “prequalified.”
Is a preapproval letter the same as a Loan Estimate?
No. They serve different purposes.
A preapproval letter helps establish that a lender may be willing to finance your purchase. A Loan Estimate provides standardized information about the terms and costs of a specific mortgage application.
Under federal rules, lenders generally must provide a Loan Estimate within three business days after receiving the six pieces of information that constitute a mortgage application, including a property address.
The Loan Estimate includes information such as the estimated interest rate, monthly payment and closing costs. It is therefore much more useful for comparing actual mortgage offers.
A preapproval alone does not give you enough information to determine which lender ultimately offers the best financing.
Is a preapproval the same as a mortgage commitment?
No. A preapproval generally comes much earlier in the process.
A mortgage commitment typically follows a more complete underwriting review and may specify conditions that must still be met before closing.
Even then, the exact meaning of the document depends on its language and the lender’s process.
If you receive one later in the transaction, understanding whether a mortgage commitment letter is binding can help you distinguish it from the preliminary approval you received while house hunting.
Can you ask the lender to change the amount on the letter?
Often, yes.
If you were preapproved up to $400,000 but plan to offer $325,000 on a particular home, you can ask whether the lender can issue a letter tailored to that transaction.
You do not necessarily need to show a seller the highest amount a lender would potentially finance.
Just make sure the revised letter remains accurate and reflects financing that the lender is actually prepared to consider.
How long does a mortgage preapproval last?
Preapproval letters often have an expiration date.
The CFPB notes that lenders commonly issue letters that remain valid for roughly 30 to 60 days, although the exact period depends on the lender.
If the letter expires before you find a home, the lender may need updated financial information or another credit review before issuing a new one.
Even before the stated expiration date, tell the lender about significant changes to your income, debts, assets or employment because those changes may affect the original preapproval.
What if your preapproval amount is lower than expected?
Ask the lender what limited the amount before assuming something went wrong.
Your existing debt, income, credit history, available down payment or the loan program could all affect the result.
If there is inaccurate information on your credit report, correcting it may help. If the result reflects your actual finances, you may need to adjust the price range you are considering.
It can also be worth discussing whether different types of home loans would change your financing options. Different programs can have different qualification requirements, down-payment structures and mortgage-insurance costs.
Do you have to use the lender that preapproved you?
No. Getting a preapproval generally does not commit you to that lender.
You can still compare mortgage offers after you find a property. In fact, the CFPB recommends shopping among multiple lenders rather than assuming the lender that issued your preapproval will necessarily offer the best final terms.
Once you have an accepted offer and receive Loan Estimates, compare the interest rate, APR, lender fees, points, cash to close and projected monthly payment.
Bottom Line
A mortgage preapproval letter is useful because it gives you and a seller evidence that a lender has evaluated your ability to finance a home purchase.
But it is still preliminary.
Read the letter carefully for the approved amount, loan assumptions, conditions and expiration date. Then keep your lender informed as your finances and home search evolve.
FAQ
What should a mortgage preapproval letter include?
The exact contents vary, but a preapproval letter commonly identifies the borrower and lender, the amount the lender may be willing to finance and conditions or assumptions underlying the preapproval. It may also include the loan program, property information and an expiration date.
Can you make an offer without a preapproval letter?
You may be able to, but sellers can prefer or require evidence that a financed buyer has spoken with a lender. Local practices and market conditions vary, so ask your real estate agent what sellers typically expect.
Can a mortgage be denied after preapproval?
Yes. Preapproval is not final loan approval. Changes to your finances, problems verifying information or issues involving the property can affect the lender’s final decision.
Does a preapproval lock your mortgage rate?
Not automatically. A rate shown in a preapproval may simply be an assumption. Ask the lender specifically whether your rate is locked, for how long and under what conditions.
Does getting preapproved mean you have chosen a lender?
No. You can still shop among lenders and compare Loan Estimates before deciding which mortgage offer to use.
