A pre-approval means a lender has pulled your credit, looked at your income and asset documents, and run them through underwriting to confirm you qualify up to a certain loan amount. You get a letter to attach to your offers, and in most of Florida a listing agent expects to see one before taking an offer seriously.
It sits one step past pre-qualification. A pre-qualification estimates from what you report. A pre-approval checks it.
What the lender needs from you
The usual list for a buyer with a W-2 job:
- Pay stubs covering the most recent 30 days
- W-2s for the last two years
- Bank statements for the last two months, every page
- A photo ID
- Permission to pull a credit report from all three bureaus
Self-employed buyers add two years of tax returns. Buyers using a gift add the donor's details. On FHA, VA, USDA and Conventional loans, the lender usually runs everything through an automated underwriting system, and its findings list the approval terms and the documents the underwriter will want later.
How to read a pre-approval letter
The letter states the loan program, the maximum purchase price or loan amount, the down payment assumed and an expiration date, often 60 to 90 days out. It doesn't lock a rate, and it isn't tied to a property yet.
Ask for a letter at your offer price, even if you're approved for more. A seller who sees a $340,000 approval on a $325,000 offer knows you have room to go higher.
The numbers behind one letter
A buyer is pre-approved for FHA up to a $340,000 price and finds a home listed at $329,000. She offers $325,000.
| Approved maximum | Letter for this offer | |
|---|---|---|
| Price | $340,000 | $325,000 |
| Down payment, 3.5% | $11,900 | $11,375 |
| FHA base loan, 96.5% | $328,100 | $313,625 |
The $325,000 letter shows the seller a buyer approved at exactly the offer price, with no hint of the extra $15,000 in room. If the seller counters at the $329,000 list price, the lender reissues the letter at $329,000 and the 3.5% down payment moves to $11,515.
Keeping the pre-approval good until closing
The approval is only as strong as the facts behind it. Between pre-approval and closing, avoid opening new credit, financing furniture or a car, changing jobs, or moving large sums of cash without a paper trail. Each of those changes the numbers the underwriter approved. If your letter expires before you find a home, the lender updates it with fresh pay stubs and statements. Once you sign a contract, the loan goes to full underwriting on that specific home and comes back as a conditional approval. The question page what does pre-approved mean covers how sellers weigh the letter.
Try the price check tool to see your likely range before you apply. For a pre-approval letter backed by a full underwriting review, call AAA Capital Funding at 888-601-8344, any day of the week.