A mortgage loan pre-approval application is a process where a lender reviews a potential homebuyer’s financial information and credit history to determine how much they may be able to borrow for a home loan. It’s a step before the actual mortgage application process, this step is usually done before the home search to help the homebuyer to know what they can afford and make an offer on a home.

The lender will review the applicant’s credit score, income, debt-to-income ratio, and employment history to make a preliminary decision on whether to approve the loan and at what terms. A pre-approval letter will be issued to the homebuyer, which they can use to show to the real estate agent and the seller that they are qualified to buy a home and they may be considered more favorably when negotiating the price.

This is a supplementary post to: First-Time Homebuyer’s Guide to Mortgage Approval