You may wait with bated breath to receive word from your lender that you’ve been pre-approved for a mortgage. And even though your pre-approval isn’t a guarantee you'll receive a loan, it’s a firm step toward that goal. If you want to estimate your approval for a mortgage, you can walk yourself through some of the same preliminary steps that your lender will take. Your estimate may differ from your mortgage lender’s pre-approval, but it could offer you insight into the mortgage loan amount you may be eligible to receive.
Mortgage Pre-Approval Process
Unlike a pre-qualification for a mortgage, which relies on unverified information you provide your lender on an application, a pre-approval is your lender’s estimate of the loan amount it will extend after confirming the information you submitted. With a pre-approval letter from your lender in hand, you’re able to show sellers not only your serious intent to buy a home, but also that your lender is in the game with you. You reach the final loan approval step once the appraiser's report that provides the actual value of the property is done and you meet any conditions included in your pre-approval document.
Contributing Factors for Pre-Approval Estimate
To estimate your pre-approved mortgage amount, you’ll need to gather some paperwork and crunch some numbers. Different lenders and different loan programs require different documentation, but these items make up the short list of items on your pre-approval punch list, which will include:
- Proof of income. Have on hand two years’ worth of tax returns, W2s (or other income-substantiating paperwork such as 1099s) and any paperwork that documents additional income such as bonuses or alimony. Also include recent pay stubs that show recurring income as well as year-to-date income totals.
- Proof of employment. Just to make sure that you haven’t quit your job (or were fired) since you submitted your pay stubs, your lender might call or fax your employer to verify your employment. And if you’ve recently changed jobs, you’ll need employment verification from your current and previous employer. Self-employed borrowers may need to provide a robust paper trail to give credibility to their business profiles.
- Proof of assets. You’ll need to show your lender that you have cash reserves to cover your down payment and closing costs. If you’ll be receiving a cash gift from someone for these costs, you’ll need to get a gift letter that confirms the cash you’re receiving is not a loan.
- List of monthly debts and other payments. Your lender will calculate your debt-to-income ratio (DTI) based on the amount of your monthly debt to qualify you (or rule you out) of different loan programs.
- Good credit score. Your credit score will, in part, determine the amount of your down payment and the interest rate on your mortgage. As a rule of thumb, you’ll need a credit score of at least 620; some loan programs require a higher credit score. But the higher your credit score, the better interest rate you can negotiate. And the lower your interest rate, the lower your monthly payment will be.
Estimating Your Mortgage Pre-Approval
Once you’ve gathered the items on your pre-approval punch list, you’ll have the information you need to start plugging your data into a pre-approval for mortgage calculator. By performing an online search for mortgage pre-qualification or pre-approval calculators, you’ll find lots of options. Choose a calculator such as one at Bankrate.com or NerdWallet.com that covers all the bases with comprehensive data fields. You can also access online calculators for many lenders on their websites.
After you plug your data into an online calculator, it will estimate the mortgage amount you may qualify for, the interest rate, the loan term and your monthly mortgage payment. Although your lender may arrive at different results, you can determine a ballpark estimate using online calculator tools.
- When you go to apply for mortgage preapproval, the lender you choose will consider your income, assets and expenses in addition to your credit score and credit history. Standard online mortgage calculators don’t request information about your credit history or even all of your assets. During the formal preapproval process the lender will verify your employment, income and credit history.
Victoria Lee Blackstone was formerly with Freddie Mac’s mortgage acquisition department, where she funded multi-million-dollar loan pools for primary lending institutions, worked on a mortgage fraud task force and wrote the convertible ARM section of the company’s policies and procedures manual. Currently, Blackstone is a professional writer with expertise in the fields of mortgage, finance, budgeting and tax. She is the author of more than 2,000 published works for newspapers, magazines, online publications and individual clients.