Mortgage Preapproval and Underwriting, Step by Step

The label matters less than the work behind it

CFPB notes that lenders use the words prequalification and preapproval differently. Ask what was verified, whether credit was checked, which documents were reviewed, how long the letter is valid, and which conditions remain. A letter based only on self-reported numbers is weaker than one backed by reviewed documents.

What underwriting evaluates

Underwriters evaluate the ability and willingness to repay, the funds needed to close, and the property securing the loan. Common inputs include income history, employment, tax returns for some borrowers, bank statements, credit reports, monthly debts, down-payment sources, reserves, appraisal, title, and insurance. Self-employed or variable-income borrowers often need more history and explanation.

• Debt-to-income ratio compares monthly debt obligations with gross monthly income.
• Loan-to-value compares the loan amount with the property's value.
• Reserves are funds left after closing that can cover future housing payments.
• Large deposits, new debts, job changes, or missing documents can create new conditions.

Conditional approval is not clear to close

A conditional approval means the file can proceed if listed conditions are satisfied. Clear to close means the lender has completed the required underwriting work and can prepare for closing, subject to final verifications. Avoid opening new credit, moving unexplained money, co-signing, or changing employment without telling the lender before closing.

Compare lenders before the offer gets urgent

CFPB recommends comparing at least three lenders. Shopping early lets you compare process quality and likely programs; after you have a property and submit the six required application items, official Loan Estimates let you compare actual costs on a consistent form.