Want to prove to a seller that you’re a qualified and serious home buyer? Request a preapproval letter from your home lender. It estimates the amount you could qualify for a home based on your credit, debt, employment history, and income. Preapproval letters are typically valid for 60 to 90 days.
Lenders will request supporting documents like:
- Proof of income
- Proof of assets
- Personal information
Tip: Some lenders offer a preapproval estimate option—a faster, less complicated preapproval process. Ask your lender if this option is available to you.
What does a preapproval letter include?
- Anticipated purchase price – The maximum amount you could qualify for. Tip: Consider your own comfort level. A general guideline is to spend no more than 30% of your gross monthly income on all housing expenses, including:
- Homeowners insurance
- Private mortgage insurance (PMI), which is only required if you put less than 20% down
- Homeowners association (HOA) fees
- Loan amount – The purchase price you and the seller agree on, minus the down payment amount. Say the purchase price is $200,000 and your down payment is $40,000 (20%). The loan amount would be $160,000.
- Loan program – The type of home loan you qualify for and its length.
- Loan term – The length of the loan—like a 15-year or 30-year fixed-rate mortgage.
- Total monthly mortgage payment – How much you could pay each month. It includes principal and interest, homeowners insurance, PMI, and HOA fees. Monthly utilities and maintenance fees aren’t included—good info to keep in mind when working out your budget.
- Interest rate – The mortgage rate you could quality for.
Tip: The better your credit score, the better your interest rate and the less money you’ll spend over the life of the loan.
Preapproval letters vary from lender to lender. Make sure you understand what your preapproval is based on.
Get a confidence boost.
You’ll feel more confident and have more leverage with your offer with a preapproval letter. Learn more about getting preapproved.