Pre-approval isn't just a credit check. An underwriter reviews four things: your credit report, your income, your assets, and your debt-to-income ratio. Here's what they're actually looking at.
Credit Report
Your lender pulls a tri-merge credit report (all three bureaus). Minimum scores vary by loan type:
- Conventional: 620+
- FHA: 580 (or 500 with 10% down)
- VA: No official minimum, but most lenders want 620
- CalHFA programs: 640+
Red flags: Recent late payments, collections, charge-offs. Collections under $5,000 are often ignored on conventional loans, but it depends on the lender.
Your score determines whether you qualify, what rate you get, and how much down payment you need. Here's how to improve your credit before applying.
Income Verification
W-2 employees need last 2 years of W-2s, last 30 days of paystubs, and a verbal employment verification (the lender calls your employer).
Self-employed borrowers need last 2 years of tax returns (personal and business), plus a year-to-date profit and loss statement. Lenders average your last 2 years of income. If you made $80K last year and $100K this year, they'll use $90K.
See our full guide for self-employed borrowers
Asset Verification
Underwriters want to see your down payment funds seasoned at least 2 months in your account, plus 2-6 months of reserves depending on loan type.
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Acceptable sources: Checking/savings, retirement accounts (401k, IRA), gift funds from family (requires a gift letter), and proceeds from selling stocks or other assets.
Red flags that slow things down:
- Large deposits you can't explain
- Recent transfers between accounts
- Overdrafts or NSF fees
Don't move money around right before applying. If you transfer $20,000 from one account to another, the underwriter will ask you to document both accounts to make sure you're not double-counting.
Debt-to-Income Ratio
Lenders calculate two numbers:
Front-end DTI = Housing payment / Gross monthly income
Back-end DTI = All monthly debts (including housing) / Gross monthly income
Most conforming loans max out at 43% back-end DTI. Some programs allow 50% with compensating factors like a high credit score or large reserves.
Counts as debt: Minimum credit card payments, student loans, car loans, personal loans, child support, alimony.
Doesn't count: Utilities, cell phone, subscriptions, insurance (except homeowners, which is part of your housing payment).
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Pre-Approval by Loan Type
Requirements vary depending on the program:
- Conventional: 620 score, 3-20% down, full verification
- FHA: 580 score, 3.5% down, more lenient credit standards
- VA: Zero down, must be veteran/active duty/qualifying spouse
- Jumbo: 700+ score, 10-20% down, 6-12 months reserves
Compare FHA vs conventional | VA loan guide | Jumbo loans explained
Next Step
Know what's required. Now get it done.
Better Offers Inc | CA DRE #01212512