Mortgage preapproval: what it tells you, and what it doesn’t

A preapproval letter generally says that a lender is tentatively willing to lend up to a stated amount, based on assumptions and information reviewed so far. It can help show a seller that you are preparing to finance a purchase, but it is not a guaranteed loan offer.

Ask how the lender reached the number

Lenders may use the words “preapproval” and “prequalification” differently, and they may review different amounts of documentation at this stage. Ask what information was verified, what assumptions were used, and what still needs to be confirmed. A lender may check your credit, and the letter may have an expiration date; ask when yours expires and what would be needed to renew it.

Set your own comfortable budget

The amount a lender is willing to consider is not a recommendation about what you should spend. Decide what monthly payment and upfront costs fit your household budget. Account for the full housing picture, including taxes, insurance, maintenance, utilities, and any association dues, rather than relying on a preapproval maximum alone.

Keep comparing lenders

A preapproval does not commit you to that lender, and it does not provide enough detail to compare final loan offers. After you have a home in mind, request Loan Estimates from lenders using the same loan scenario. Compare the rate, points, lender charges, payment, and cash to close.

Continue to respond promptly if the lender requests updated information. The final decision depends on later verification and the details of the property and loan. Ask the lender what could change the terms or affect approval before you make plans around a letter.

For more detail, read the CFPB guide to getting a preapproval letter and its guide to requesting Loan Estimates.