What Is a Mortgage Preapproval Letter?

Dated: January 7 2021

Views: 230

What Is a Mortgage Preapproval Letter?

In a nutshell, a mortgage preapproval letter from a lender says you’re likely to qualify for a mortgage loan based on the financial information you submitted. The letter details how much money you could be approved for.

It’s important to understand that a preapproval isn’t the same as a mortgage approval—a preapproval isn’t a guarantee of funding. A preapproval letter is intended to give you a budget to work with during the process of looking for and buying a home. It also lets sellers know that you’re a good candidate to receive financing.

The preapproval process can vary from lender to lender. Some will only ask for basic info like your name, annual income, and credit score. Others may request documentation of your finances, and perform a credit check.

Reasons Why Lenders May Deny Preapprovals

Mortgage lenders may approve or deny your application depending on how much of a risk they consider you to be. In a recent study by the Consumer Financial Protection Bureau (CFPB) of 2019 mortgage-application denials, high debt-to-income (DTI) ratios were the reason behind about a third of mortgage applications being denied. Another main factor was poor credit history.  

A little more about DTI ratios. A debt-to-income ratio is the amount of your monthly income that’s used for paying debt. A front-end debt-to-income ratio is calculated by your estimated costs for housing divided by your gross income. A back-end debt-to-income ratio is the percentage of your income that’s used for paying housing costs, student loans, credit cards, car loans, child support, and revolving debt on your credit report. Typically, mortgage lenders like to see a back-end DTI ratio of 36 percent or less, although the FHA will accept a DTI ratio of up to 50 percent.

To learn more about DTI ratios, and to determine yours, visit sites like Bankrate.com and NerdWallet.com, which offer comprehensive explanations of debt-to-income ratios and have DTI ratio calculators you can use.


Are You Buying or Selling a Home in Vero Beach?

If you're considering buying or selling a home in Vero Beach, we're here to help. Check out our: 

You can also get in touch with us to learn how we can aggressively market your home to all the right buyers. We can help you sell it quickly - and at the right price - so call us today.

Blog author image

Chip Boyer

Chip is the IT Manager for Alex MacWilliam Real Estate. He handles the technology needs of the company as well as helping agents in their day to day problem solving.....

Latest Blog Posts

5 Off-the-Beaten-Path Adventures Near Vero Beach

If you're buying a home for sale in Vero Beach, you'll be glad to know that there's always something to see or do nearby. In fact, check out these five quirky adventures you can go on after you're

Read More

The 5 Best Places to Catch the Sunrise in Vero Beach

If you're thinking about buying a home in Vero Beach, you probably already know that this community has tons of great places to watch the sun come up – but where are the best spots? This guide

Read More

3 Great Vero Beach Attractions Worth Checking Out

If you're thinking about moving to Vero Beach, you're not alone – this is an extremely popular area. After you get settled in, there are several fabulous attractions everyone should see. This

Read More

5 Great Places to Take Your Grandkids in Vero Beach

If you're a grandparent who's thinking about retiring in Vero Beach, part of your job is scouting out the best places to take your grandkids when they visit. We've got you covered with the five best

Read More