Pre-approval is a detailed evaluation of a borrower’s financial situation, including income, credit history, and debt-to-income ratio, to determine their ability to qualify for a mortgage. Borrowers provide documentation like pay stubs, tax returns, and bank statements, and the lender may review their credit report.

After reviewing, the lender issues a pre-approval letter stating the maximum loan amount, showing sellers the borrower is serious and qualified. While pre-approval is not a loan guarantee, it gives a clear idea of borrowing capacity and simplifies the home-buying process.