What is a Mortgage Pre-Approval?

When you are pre-approved for a mortgage, it means a lender has determined how much you can borrow, the loan programs that you may qualify for, as well as the interest rate you qualify for. This assessment is based on things like credit score, income, debts, and employment history.

You’ll generally get a written statement from a lender stating this information, which can be used to give sellers confidence that you’ll be approved for a loan after they accept your offer. Most pre-approval letters are good for 60 to 90 days.

How Do You Find a Lender to Get Pre-Approved?


You may ask your Realtor for lenders they can recommend or you may do a search online for “local mortgage lenders” and look at reviews from former clients.   Your chosen lender will conduct a preliminary review to determine your loan qualifications based on their guidelines.

Does Pre-Approval Guarantee a Loan?

No.  Even if you receive a pre-approval letter from a lender you have contacted you may not get a loan from a lender and you are not guaranteed a specific rate or loan term.  Regardless of pre-approval, a lender may require additional income and asset verification, as well as the satisfaction of other conditions, before extending you a loan. Pre-approval letters are subject to modification or cancellation if your financial situation or other conditions change. A pre-approval letter is not an offer to lend, a commitment to make a loan, or a guarantee of specific rates or terms. It is is not an application for credit. Also, having a pre-approval letter does not guarantee that an offer you make on a home will be accepted by a seller.


Why Should You Get Pre-Approved?


There are many reasons why you should get pre-approved. The most important reason is that you will get an accurate idea of how much home you can afford. This can help to target your home search and ensure you only look at houses that are truly in your price range. A pre-approval letter also helps you prove to real estate agents and sellers that you’re a credible buyer and able to act fast when you find the home you want to buy. Some sellers might even require buyers to submit a pre-approval letter with their offers, though having a pre-approval letter does not guarantee that your offer will be accepted by a seller. A pre-approval letter can make you stand out in a competitive real estate market. If you make an offer on a house without a pre-approval, your offer may not be taken as seriously as an offer from another person with a pre-approval.

What Details Are Required in the Pre-Approval Process?

A lender will generally start by asking for some basic information about you and your financial history. If you have a co-borrower, the lender will also need this information about them. Generally, a lender will then request your Social Security number and permission to pull your required credit report (and your co-borrower’s, if you have one). If the information you provide and the information obtained from your credit report satisfies the lender’s guidelines, the lender will make a preliminary determination in writing stating that you would qualify for a particular loan amount subject to the conditions outlined in your pre-approval letter. Please note that each lender has its own standards and processes for determining whether to grant a pre-approval letter.

What If You Can’t Get Pre-Approved?


Not everyone will get pre-approved for a mortgage, but there are a few things you can do to get better prepared for the financial responsibility of  homeownership:

  • Work to improve your credit score. Your credit score is impacted by payment history, outstanding debt, the length of your credit history, recent new credit inquiries, types of credit used, and more. Generally a score of 720 and higher will get you the most favorable mortgage rates.
  • Correct any errors on your credit report, which could help to raise your credit score. The lender will analyze your credit report for any red flags, such as late or missed payments or charged-off debt. Even if you are deemed to have bad credit, there are ways to still get pre-approved for a mortgage.
  • Decrease your overall debt and improve your debt-to-income ratio. In general, a debt-to-income ratio of 36 percent or less is preferable; 43 percent is the maximum ratio allowed. Use our debt-to-income calculator to determine your debt-to-income ratio.
  • Increase your down payment amount in order to qualify for a larger loan. Learn more about down payments.

Be sure to ask your lender for tips on how you can improve your chances of qualifying for a loan.

Questions?  We can help!  Contact Us Below.

What Are Closing Costs?

Closing costs are fees associated with your home purchase that are paid at the closing of a real estate transaction.  Closing is the point in time when the title of the property is transferred from the seller to the buyer. Closing costs are incurred by either the buyer or seller.

What fees can you expect at closing?

Closing costs vary widely based on where you live, the property you buy, and the type of loan you choose.   Below is a list of fees that may be included in closing.  The list is inclusive of fees you may see, but it’s not likely that your loan will include all of the fees listed here.

  • Application Fee:  This fee covers the cost for the lender to process your application.  Before submitting an application, ask your lender what this fee covers. It can often include things like a credit check for your credit score or appraisal as well.  Not all lenders charge an application fee, and it can often be negotiated.
  • Appraisal:  This is paid to the appraisal company to confirm the fair market value of the home.
  • Attorney Fee:  This pays for an attorney to review the closing documents on behalf of the buyer or the lender. This is not required in all states.
  • Closing Fee or Escrow Fee: This is paid to the title company, escrow company or attorney for conducting the closing. The title company or escrow oversees the closing as an independent party in your home purchase. Some states require a real estate attorney be present at every closing.
  • Courier Fee: This covers the cost of transporting documents to complete the loan transaction as quickly as possible.
  • Credit Report:   A Tri-merge credit report is pulled to get your credit history and score. Your credit score plays a big role in determining the interest rate you’ll get on your loan.  If you have credit issues, be sure to discuss with your lender what options you may have to help improve your score.
  • Escrow Deposit for Property Taxes & Mortgage Insurance:   Often you are asked to put down two months of property tax and mortgage insurance payments at closing.
  • FHA Up-Front Mortgage Insurance Premium (UPMIP):   If you have an FHA loan, you’ll be required to pay the UPMIP of 1.75% of the base loan amount. You are also able to roll this into the cost of the loan if you prefer.
  • Flood Determination or Life of Loan Coverage:  This is paid to a third party to determine if the property is located in a flood zone.  If the property is found to be located within a flood zone, you will need to buy flood insurance.  The insurance, of course, is paid separately.
  • Home Inspection:  You will likely get your own home inspection to verify the condition of a property and to check for home repairs that may be needed before closing.
  • Home Owners Association Transfer Fees:  The Seller will pay for this transfer which will show that the dues are paid current, what the dues are, a copy of the association financial statements, minutes and notices.  The buyer should review these documents to determine if the Association has enough reserves in place to avert future special assessments, check to see if there are special assessments, legal action, or any other items that might be of concern.  Also included will be Association by-laws, rules and regulations and CC & Rs.
  • Homeowners’ Insurance:  This covers possible damages to your home. Your first year’s insurance is often paid at closing.
  • Lender’s Policy Title Insurance:  This is insurance to assure the lender that you own the home and the lender’s mortgage is a valid lien, and it protects the lender if there is a problem with the title. Similar to the title search, but always a separate line item.
  • Lead-Based Paint Inspection:  Covers the cost of evaluating lead-based paint risk.
  • Loan Discount Points:  “Points” are prepaid interest.  One point is one percent of your loan amount. This is a lump sum payment that lowers your monthly payment for the life of your loan.
  • Owner’s Policy Title Insurance:  This is an insurance policy that protects you in the event someone challenges your ownership of the home. It is usually optional.
  • Origination Fee:  This covers the lender’s administrative costs. It’s usually about 1 percent of the total loan but you can sometimes find mortgages with no origination fee.
  • Pest Inspection:  This fee covers the cost to inspect for termites or dry rot, which is required in some states and required for government loans.  Repairs can get expensive if evidence of termites, dry rot or other wood damage is found.
  • Prepaid Interest:  Most lenders will ask you to prepay any interest that will accrue between closing and the date of your first mortgage payment.
  • Private Mortgage Insurance (PMI):  If you’re making a down payment that’s less than 20% of the home’s purchase price, chances are you’ll be required to pay PMI. If so, you may need to pay the first month’s PMI payment at closing.
  • Property Tax:  Typically, lenders will want any taxes due within 60 days of purchase by the loan servicer to be paid at closing.
  • Recording Fees:  A fee charged by your local recording office, usually city or county, for the recording of public land records.
  • Survey Fee: This fee goes to a survey company to verify all property lines and things like shared fences on the property.  This is not required in all states.
  • Title Company Title Search or Exam Fee: This fee is paid to the title company for doing a thorough search of the property’s records. The title company researches the deed to your new home, ensuring that no one else has a claim to the property.
  • Transfer Taxes:  This is the tax paid when the title passes from seller to buyer.
  • Underwriting Fee:  This also goes to your lender, covering the cost of researching whether or not to approve you for the loan.
  • VA Funding Fee:   If you have a VA loan, you may be required to pay a VA funding fee at closing (or you can roll this fee into the cost of the loan if you prefer). This is a percentage of the loan amount that the VA assesses to fund the VA home loan program, however some borrowers are exempt from this fee. The percentage depends on your type of service and the amount of your down payment.

What is a Title Company?

A title company makes sure that the title to a piece of real estate is legitimate and then issues title insurance for that property. Title insurance protects the lender and/or owner against lawsuits or claims against the property that result from disputes over the title.

Title companies also often maintain escrow accounts — these contain the funds needed to close on the home — to ensure that this money is used only for settlement and closing costs, and may conduct the formal closing on the home. At the closing, a settlement agent from the title company will bring all the necessary documentation, explain it to the parties, collect closing costs and distribute monies. Finally, the title company will ensure that the new titles, deeds and other documents are filed with the appropriate entities.

Here’s what potential home buyers need to know about title insurance.

How Does a Title Company Determine That a Title is Valid?

The title company makes sure a property title is legitimate, so that the buyer may be confident that once he buys a property, he is the rightful owner of the property. To ensure that the title is valid, the title company will do a title search, which is a thorough examination of property records to make sure that the person or company claiming to own the property does, in fact, legally own the property and that no one else could claim full or partial ownership of the property.


During the title search, the title company also looks for any outstanding mortgages, liens, judgments or unpaid taxes associated with the property, as well as any restrictions, easements, leases or other issues that might impact ownership. The title company may also require a property survey, which determines the boundaries of the plot of land that a home sits on, whether the home sits within those boundaries, whether there are any encroachments on the property by neighbors and any easements that may impact an ownership claim.

Before a title company issues title insurance, it will prepare an abstract of title, which is a short summary of what it found during the title search (basically, this is the history of the ownership of the property). Then, it will issue a title opinion letter, which is a legal document that speaks to the validity of the title.

What is Title Insurance?

Once the title is found to be valid, the title company will likely issue a title insurance policy, which protects lenders or owners against claims or legal fees that may arise from disputes over the ownership of the property.

There are two main types of title insurance: owner’s title insurance, which protects the property owner from title issues, and lender’s title insurance, which protects the mortgage company. You, the home buyer, will pay for the lender’s title insurance when you close on the house, but it’s also a good idea to make sure you have an owner’s title insurance policy as well (in some areas of the country, sellers pay for these policies; in others, the buyer must purchase it).

For example: You buy a home and get both lender’s and buyer’s title insurance, but then someone comes forward claiming they are the rightful owner of the home. If, in fact, the title was wrong and they are the rightful owner of the home, your title insurance policy will likely pay you the value of the home and the lender the amount they lent you to buy the home.

How Do You Pick a Title Company?

Ask your real estate agent, peers who have recently bought a home or your lender for recommendations for a title company. Then, do your homework on the title companies recommended.

Look for a title company that has years of experience doing this (have they done hundreds or even thousands of these kinds of transactions?). Contact the Better Business Bureau to determine whether the company has any complaints against it.

You should also shop around for the best premium rates in your area; if you buy an owner’s title insurance policy, make sure you get one with as few exclusions as possible and that it covers the full purchase price of the home.

What Does a Title Company Charge?

The cost of title insurance depends on the size of the loan and varies greatly depending on the state. The good news is that the premium is a one-time fee you pay at closing, not an ongoing expense.

According to the Federal Reserve, “a lender’s policy on a $100,000 loan can range from $175 in one state to $900 in another.” You’ll typically pay an additional amount — usually a few hundred dollars or more, depending on the size of the loan and your state of residence — for a buyer’s policy.

Note that you may be able to get a discounted rate on your title insurance if the property was sold within the previous five years; just call and ask.

When Do You Meet With the Title Company and How Often?

You may meet with or talk to an agent from the title company on multiple occasions. First, you may decide to meet with a few agents from title companies before you buy your home to help you decide which company to go with.

If the title company maintains an escrow account for you, the agent may reach out to you to provide details on that account or you may contact him with questions.

If your title company handles your closing, you will meet with a settlement agent in person then. At this time, the settlement agent will explain all the documents related to the settlement before you sign anything. And, of course, if something goes wrong with regards to the title, you will likely meet with one of their agents then.

Consumers should feel free to contact their title company at any time to get answers to their questions on title searches, title abstracts, title insurance, escrow accounts or closings.