Pre-Approval

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.

Debt-to-Income Ratio (DTI)

Your debt-to-income ratio is the percentage of your gross monthly income that goes toward paying debts, including your mortgage, car loans, student loans, and credit card minimums. Lenders use DTI to evaluate your ability to manage monthly payments. Most mortgage programs prefer a DTI of 43 percent or lower, though some programs allow up to 50 percent with compensating factors. A lower DTI improves your chances of approval and may qualify you for better rates.

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.