Pre-Approval
A lender's conditional estimate of how much it may lend you, based on verified income, debts, and credit. It is a qualification ceiling, not a budget. Nor is it a guarantee the loan closes.
Pre-approval is a step beyond pre-qualification. Pre-qualification is a quick, self-reported estimate, while pre-approval involves the lender verifying income, debts, and credit, which makes the resulting number far more reliable to sellers.
The figure you receive is a ceiling, the most the lender is willing to extend given your gross-income DTI. It does not account for your taxes, retirement savings, childcare, or the life you want to keep funding, so the approved maximum is rarely the payment you should actually take on. It is also conditional, final approval depends on the appraisal, an unchanged financial picture, and underwriting. Treat the number as the top of the range and choose your real budget well below it. Terms vary by lender.
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Related terms: Debt-to-Income Ratio (DTI) , Back-End DTI , Buying Power
Last updated . Part of the FinExplained finance glossary .