Debt-to-Income Ratio (DTI)

Pre-Approval

Mortgage pre-approval is a formal evaluation by a lender that determines how much you can borrow based on your income, assets, credit, and debts. It involves a credit check and document review and results in a pre-approval letter that shows sellers you are a serious, qualified buyer. Pre-approval is more thorough than pre-qualification and carries more weight in competitive markets. A pre-approval letter is typically valid for 60 to 90 days.

Pre-Qualification

Pre-qualification is an initial estimate of how much you may be able to borrow, based on self-reported financial information. It does not involve a credit check or document verification, so it is less thorough than a pre-approval. Pre-qualification gives you a general idea of your budget and is a useful first step before house hunting. However, it does not carry the same weight as a pre-approval letter when making offers on homes.

Underwriting

Underwriting is the process by which a lender evaluates your financial profile to determine whether to approve your mortgage application. The underwriter reviews your credit history, income, assets, debts, and the property appraisal to assess the overall risk of the loan. This step typically takes several days to a couple of weeks. The underwriter may request additional documentation or clarification before issuing a final decision, which will be approved, conditionally approved, suspended, or denied.