Mortgage prequalification: Learn your limits and maximize your resources

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Seeking approval.

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For many, buying a home is still the American Dream. However, unless you have about $360,000 sitting around (the average home value as of early 2026, according to real estate website Zillow), you’ll need to borrow money. And that means taking out a mortgage.

How much house can you afford? That’s where mortgage prequalification—and its more formalized cousin, preapproval—come in. Knowing your limits up front will not only help narrow your choice set to homes within your budget; it will also help demonstrate to lenders that you’ll be able to make your home loan payments.

A lender usually considers several factors when deciding whether to let you borrow. Because of the large amounts of money involved, it wants to be reasonably sure that you’ll make your payments on time and eventually pay off the loan (with interest, of course).

Here are some of the main factors that lenders take into consideration.

Your credit score quantifies how you’ve handled debt in the past; it’s one of the critical factors in qualifying you for a mortgage. A credit score of at least 620 is often required to qualify for many conventional mortgages. And the higher your credit score, the lower your interest rate. For example, as of February 2026, the average rate on a 30‑year fixed conventional mortgage was about 6.3% for borrowers with credit scores of 760 or higher. With scores around 700, that average rose to roughly 6.6%, and at about 620, the rate climbed to roughly 7.2%, according to Curinos mortgage data published by Experian.

Some programs, such as government-backed Federal Housing Administration loans, allow a credit score of 580 or lower to qualify. But you’ll need a bigger down payment and might be subject to higher mortgage rates.

Your debt-to-income ratio, or DTI, expresses how much of your monthly income goes toward making debt payments. For example, let’s say you have a monthly income of $4,500. You pay $150 toward student loans, $500 on a car note, and have a minimum payment of $135 on your credit card. Divide $785 by $4,500 for a DTI of 0.1744, or about 17%.

Your lender will calculate your DTI in light of your potential new mortgage payment as well. So if your mortgage results in a payment of $1,000 a month, your DTI after adding in the mortgage payment is about 40%. Many lenders require a total DTI below 43% to qualify, although some will accept a DTI as high as 50%.

The kind of property and how you want to use it matters when qualifying for a mortgage. It’s easiest to get a mortgage for a home that you plan to live in (your primary residence). If you’re seeking a mortgage to buy an investment property, there are often more hoops to jump through. And if you’re looking at a condo versus a single-family home? Prepare for a slightly higher interest rate.

It’s all about risk: Lenders perceive more risk if an unknown third party (i.e., a renter) will be occupying the property. And condominiums typically have multiple units, shared space, and shared walls. More uncontrolled variables means more perceived risk—and a higher interest rate.

Your lender wants to know that you have a stable income. It’ll look at your tax returns from at least the last two years and might require you to submit bank statements. On top of that, it might want to confirm that you have other assets, such as investment accounts and savings, to ensure you can make payments if something goes wrong.

Many lenders also vet the source of your down payment. They want to know if it’s a gift or loan from a relative versus your personal savings. If you’re getting a loan for your down payment, it might reduce your chances of being approved and/or affect your rate.

You will probably go through two processes for your mortgage: prequalification and preapproval.

During this somewhat informal process, the lender looks at your basic income, debt, and credit information and estimates how much you can borrow. Sometimes, it involves a “soft” credit pull—a search for informational purposes, as opposed to a “hard” credit check, which indicates a new or imminent loan application—and it often relies on your estimates of your financial situation. Mortgage prequalification is useful when comparing offers and mortgage rates from different lenders.

A more formal process, a mortgage preapproval usually requires a hard credit check and documentation about your income and assets. You’ll normally get a letter stating how much the lender will let you borrow. You can show your preapproval letter to sellers and their agents as you house-hunt and make an offer.

Generally, a mortgage loan prequalification won’t help if a seller requires preapproval as a prerequisite to submit an offer. And even if you get a mortgage preapproval, the final closing is usually contingent on another credit review. If your situation changes between application and closing, that closing could fall through, even if you were previously qualified for a mortgage.

Housing affordability depends on your situation. Even if you’re prequalified for a mortgage, how much a lender will let you borrow isn’t the same as what’s comfortable for your budget.

One common guideline is the 30% rule, which suggests you should keep your housing payment to no more than 30% of your income. You can decide whether that means gross income (before taxes and other withholdings) or net income (your take-home pay).

If you make $4,500 a month but your take-home pay is $3,300, you have to decide if you would be more comfortable with a payment of $1,350 or $990. Some homebuyers prefer to estimate an affordable mortgage payment based on their take-home pay to avoid becoming “house poor.”

Before you begin house-hunting, consider using a loan calculator (such as the one below) to run the numbers and compare scenarios. A bank might be willing to lend you more than you want to spend, so understand your budget to avoid buying more house than you can afford.

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Here are some things to consider before you start the mortgage loan prequalification process:

Any lender wants to make sure you’re going to pay them back—after all, that’s how they stay in business. So it’s in their best interest to put the math in their favor by requiring a substantial down payment and ensuring you’re creditworthy and stable enough to make your payments. Anything that adds to the repayment risk will either be borne by you in the form of a higher interest rate, or will result in your mortgage application being rejected outright.

Nobody wants that. But you can increase the chances of looking attractive to a lender by understanding the steps you need to take to qualify for a mortgage. Once you go through the prequalification process, you can determine whether you want to move forward with preapproval. And if all systems are “go,” find that perfect home and make an offer!