When a seller's agent asks if you're pre-approved, they want to know that a lender has already checked the things that sink most deals: credit, income, debts and cash. A pre-approval letter says a lender has looked at real documents and run your numbers through the same underwriting rules it will use on the loan. It names a price, a loan program and a down payment, and it makes your offer one a Florida seller can take seriously.
Pre-approval and pre-qualification are different steps
| Pre-qualification | Pre-approval | |
|---|---|---|
| Credit | Sometimes checked, sometimes self-reported | Pulled from all three bureaus |
| Income | What you tell the lender | Pay stubs, W-2s or tax returns reviewed |
| Assets | What you tell the lender | Bank statements reviewed |
| Underwriting | A quick estimate | Run through automated underwriting (FHA's TOTAL Scorecard or Fannie Mae's Desktop Underwriter) |
| Weight with a seller | Light | Strong |
The Consumer Financial Protection Bureau points out that lenders don't all use these two words the same way. What counts is what the lender actually verified, so ask. A letter backed by a full credit report, documents and an automated approval is the one worth carrying into a showing.
What the lender reviews
- Credit: a tri-merge report pulls all three bureaus, and the lender uses your middle score.
- Income: usually 30 days of pay stubs and two years of W-2s, or two years of tax returns if you're self-employed.
- Assets: two months of bank statements showing the down payment and closing costs, or a gift letter if family is helping.
- Debts: every monthly payment on your credit report, set against your gross income to get your debt-to-income ratio (DTI).
How the pre-approval amount is set
Take a buyer earning $5,500 a month with $400 a month in other debts, buying with FHA and 3.5% down at a 5.75% rate, taxes at about 0.90% of the price and insurance at $283 a month. FHA's automated limits allow a housing payment up to 46.9% of income and total debts up to 56.9%.
| Limit | Math | Maximum housing payment |
|---|---|---|
| Housing ratio | 46.9% × $5,500 | $2,579.50 |
| Total ratio | 56.9% × $5,500 − $400 of debts | $2,729.50 |
| Lower of the two | $2,579.50 |
A $2,579.50 full payment matches an FHA price of about $331,700. That's the number on the letter.
The program on the letter matters, because each one draws its lines in a different place. For the same buyer, Conventional's 50% total limit allows $2,750 − $400 = $2,350 for housing, before PMI pricing by credit score comes in. VA uses 41% total as a guide, or $1,855 for housing here, and goes higher when the buyer's residual income (the money left each month after the payment, debts and living costs) clears VA's table. USDA caps housing at 29%, or $1,595. That's why a good pre-approval runs every program and names the one that buys the most home.
Now say the buyer finances a car for $450 a month a week after getting the letter. Debts rise to $850, the total ratio now allows only $3,129.50 − $850 = $2,279.50 for housing, and the price drops to about $288,400. One car payment cost about $43,300 of buying power. That's why lenders tell you to hold off on new credit until after closing.
What happens after the letter
Once you're under contract, the lender orders the appraisal and title work and sends the full application to an underwriter. You'll get a conditional approval listing any final items, such as an updated pay stub or a letter explaining a deposit. When those are in, the loan is clear to close. The things that can change a pre-approval along the way are the ones you control: a new debt, a job change, a large deposit you can't document or a missed payment. Keep everything steady and the letter holds up.
To see the price your income supports before you apply, use the home affordability calculator. When you're ready for a letter to put with an offer, call AAA Capital Funding at 888-601-8344 and we'll pull credit, review your documents and issue a full pre-approval.