What Is a Preapproval or Prequalification Letter?

Browsing listings and touring properties to find a home you love is exciting. But before you make an offer, sellers and real estate agents will often want to see a prequalification or preapproval letter from a mortgage lender.

These letters can help you understand how much you may be able to borrow, and both show you've started the mortgage process. However, these documents are not necessarily the same thing, and lenders use these terms differently, so what each letter involves can vary. Here's what to know about these documents as you move through the homebuying process.

What Is a Mortgage Prequalification Letter?

A mortgage prequalification letter is a document from a mortgage company that estimates how much you may be able to borrow for a home purchase. It's based on the lender's early review of your finances, before you complete a full mortgage application.

During mortgage prequalification, a lender typically asks for basic financial information, such as your income, employment, monthly debts, and savings. Some lenders also check your credit. The lender uses this information to estimate a loan amount, which then appears in your letter along with details such as the loan type and expiration date.

Keep in mind that a prequalification letter isn't a final loan approval or a promise to lend. Much of the information behind it is often self-reported and not yet verified. Your lender will still need to review your documents, credit, and the home itself before you can get final approval.

What Is a Preapproval Letter for a Home Loan?

A preapproval letter for a home loan is a document from a lender stating that you may qualify to borrow up to a certain amount, based on areview of your finances. Depending on the mortgage company, you may need to provide documents, such as pay stubs, W-2s, or bank statements.

There's no single standard for mortgage preapproval. Each lender sets its own requirements, and the terms "prequalification" and "preapproval" don't mean the same thing at every company. The best way to know what your letter reflects is to ask your lender what it reviewed.

Like a prequalification letter, a preapproval letter isn't final approval. Mortgage loans still go through underwriting and other checks before closing. It's also worth noting that Freedom Mortgage's standard process is prequalification. In some circumstances, Freedom Mortgage can also provide a preapproval letter, so ask your Loan Advisor which option fits your situation.

Quick Comparison: Prequalification vs. Preapproval Letters

Both letters are documents a lender may give you after completing its home loan prequalification or preapproval process. Because requirements and terms vary by mortgage company, the differences below are common patterns, not fixed rules. Neither letter is final loan approval or a guaranteed commitment to lend.

What Information Is Included in Prequalification and Preapproval Letters?

Every letter looks a little different, depending on the lender, your situation, and the type of letter. Because it's based on your financial information, it reflects the mortgage loans you may qualify for right now. Many letters include some version of the following:

• Borrower information: This lists your name and any co-borrowers, so it's clear who the lender reviewed.
• Maximum loan amount: This is the amount the lender estimates you may be able to borrow, though some letters show an estimated purchase price instead, which can be higher if you're making a down payment.
• Loan type and term: This tells you which mortgage the estimate assumes, such as a 30-year fixed loan or an FHA loan.
• Estimated interest rate: Some letters include an estimated rate to help you gauge your payments, though rates can change before you lock.
• Lender information: The mortgage company's name and contact details let a seller or agent confirm the letter is legitimate.
• Issue or expiration date: These dates show when the letter was issued and how long it's valid, so everyone knows the information is current.

Conditions or disclaimers: This section explains what still needs to happen before final approval, such as income verification, a review of the property, and underwriting.

What Do Prequalification and Preapproval Letters Show Sellers?

When you're ready to make an offer on a home, the seller or their agent may ask for a prequalification or preapproval letter. Sellers want some sign that a buyer is likely to get financing, since a deal that falls through costs them time. Many real estate agents also like to see a letter before helping you with making an offer on a house.

When you find a home that you want to buy, your real estate agent will likely include your letter with your offer. The letter shows sellers that you've taken early steps toward financing, but it doesn't tell them everything. Here's a quick look at what a letter can and can't communicate.

In short, neither a prequalification letter nor a preapproval letter is a guaranteed loan. Your lender will still need to verify your financial information, review the property, and complete underwriting before your mortgage can receive final approval.

How to Get a Prequalification or Preapproval Letter

Getting either type of letter usually starts with contacting a mortgage company and completing its prequalification or preapproval process. The exact steps vary by lender. Some letters are ready within minutes, while others can take a few business days if documents need to be reviewed.

1. Choose and contact a mortgage lender: Reach out online, by phone, or in person. Ask whether the lender offers prequalification, preapproval, or both, and what each involves. You might want to shop around.
2. Provide the requested financial information: Expect questions about your income, employer, monthly debts, and savings. Some mortgage companies also ask for documents like pay stubs and bank statements.
3. Complete any required credit review: Most lenders check your credit to see your score and payment history. Ask ahead of time whether they'll use a soft or hard credit pull.
4. Receive and review your letter: Check that your name, loan amount, loan type, and expiration date are correct. Read the conditions so you know what's needed before final approval.
5. Begin home shopping: Share your letter with your real estate agent and use it to guide your search. When you're ready to move forward, you'll complete a full mortgage application.

At Freedom Mortgage, prequalification is free. You can start online by answering a few questions about your income, employment, and finances, and a Loan Advisor will follow up to review your potential loan. Knowing how and when to get prequalified can also help you time your letter so it's still current when you're ready to make an offer.

Do Prequalification or Preapproval Letters Affect Your Credit?

A prequalification or preapproval letter can affect your credit if the mortgage company uses a hard credit inquiry. A soft inquiry doesn't affect your score, while a hard inquiry usually impacts your credit score only slightly. According to FICO, most people see a drop of fewer than five points.

Hard inquiries stay on your credit report for two years, but FICO scores only factor them in for 12 months. Freedom Mortgage's prequalification process includes a hard credit pull, so it's helpful to understand how prequalification can affect your credit ahead of time.

How to Use Your Prequalification or Preapproval Letter When Buying a Home

You can use a prequalification or preapproval letter to set your price range, help your real estate agent focus your search, and support your offer. Share it with your agent early so you can tour homes that fit your potential financing. Having a current letter ready may also help you move more quickly when you're prepared to make an offer. You may also need an updated letter as your search goes on. Letters expire, and changes in your income, debts, savings, or target price can affect what you qualify for.

Keep in mind that the amount in your letter is a ceiling, not a target. If your letter estimates you could borrow up to $300,000, borrowing the full amount may not fit your budget once you factor in childcare, savings goals, and other expenses. You may decide to borrow less than the amount in your letter to keep your monthly housing costs comfortable, so try our affordability calculator to estimate a budget that fits your whole financial picture.

With Freedom Mortgage, you can also request a letter for a purchase price lower than your maximum, so you don't have to show sellers your full budget.

Preapproval and Prequalification Letter FAQs

Still have questions about getting a prequalification letter or a preapproval letter for a home loan? Here are answers to some common ones.

How Long Are Prequalification and Preapproval Letters Good For?

Most prequalification letters are good for 30 to 90 days, and a mortgage preapproval lasts about as long, though the timeline varies by lender and type of letter. Check the expiration date on yours, and if it runs out before you find a home, you can usually request an updated letter. Freedom Mortgage prequalifications are good for 90 days.

Can You Make an Offer with a Prequalification or Preapproval Letter?

Yes, you can make an offer with a prequalification or preapproval letter, and many buyers do. Some sellers expect a letter with every offer, but practices vary by market, so your real estate agent can tell you what's normal where you're buying.

Can You Get More Than One Prequalification or Preapproval Letter?

Yes, you can get a prequalification or preapproval letter from more than one lender. Comparing a few can help you find the right fit, and having a letter doesn't commit you to that mortgage company. Just keep in mind that each lender may run its own credit check, and some use hard pulls, so ask before you apply.

Do Prequalification and Preapproval Letters Mean You’ll Be Approved?

No, a prequalification or preapproval letter doesn't guarantee you'll be approved. Your loan still has to clear underwriting, and unverified details or changes like new debt or a job switch can lead to being denied after preapproval.

Final Thoughts: Get a Prequalification Letter with Freedom Mortgage

A prequalification or preapproval letter is a helpful first step when you're buying a home. It gives you a price range to work with and shows sellers you've started lining up financing. Just keep in mind that it's an estimate, not final approval, and your ideal budget may be lower than your letter's amount.

When you're ready to start shopping, Freedom Mortgage is here to help. Prequalifying early gives you time to review your letter and plan your budget before you tour homes. Get prequalified online today and take the next step toward your new home.