What Is a Pre-Approval?

Short answer

A pre-approval is a written letter from a lender or broker stating the loan amount you qualify for, issued after pulling your credit and reviewing your income and asset documents, often with an automated underwriting approval. It is stronger than a pre-qualification, which relies on what you say. In Miami, listing agents expect a pre-approval letter with every financed offer, and a complete one lets you close faster once you are under contract.

Definition

A pre-approval is a conditional commitment based on verified documents, subject to an acceptable property, appraisal and title, and to no changes in your finances. It typically lists the maximum price, loan type, down payment and expiration date.

Worked example

A couple in Doral earns $11,000 a month gross and has $900 in monthly debts. Their loan officer pulls credit (scores 742 and 718), reviews two years of W-2s, 30 days of pay stubs and two months of bank statements showing $95,000. Automated underwriting approves a conventional loan at a 45% DTI: maximum total debt $11,000 x 0.45 = $4,950, minus $900 = $4,050 for housing. At today's rates with taxes, insurance and a $350 HOA, that supports a loan of roughly $520,000. With 10% down they get a pre-approval letter for up to $578,000 purchase price, cash to close around $75,000, leaving $20,000 in reserves. Rates vary daily, so the letter is re-run when they find a home.

What you need to get pre-approved

• Photo ID and Social Security number (or ITIN for ITIN programs).
• Income: 30 days of pay stubs and two years of W-2s; or two years of tax returns and a year-to-date P&L for self-employed; or 12 to 24 months of bank statements for a bank statement loan.
• Assets: two months of statements for every account used for down payment and reserves.
• A credit pull, which lets us check scores and debts across all three bureaus.

QMS Lending reviews your file across 100+ lenders and issues the letter, usually within 24 hours of receiving documents.

Pre-approval vs pre-qualification vs commitment

A pre-qualification is an estimate from stated information. A pre-approval is based on verified documents and a credit pull. A loan commitment or clear to close comes after full underwriting of you and the property. Sellers in Miami want at least the pre-approval.

In South Florida

A strong pre-approval matters more in South Florida than in most markets because you compete with cash buyers and because the housing payment is hard to estimate. Insist that your loan officer uses realistic Miami-Dade taxes (on the purchase price, not the seller's bill), a real insurance quote with windstorm and flood, and the actual HOA for condos; otherwise the letter overstates what you can afford. Have the letter tailored to each offer at the offer price, not the maximum, so you do not show the seller your full budget.