Conventional Loan Pre-Approval Checks for Credit, Income and Assets

The Quick Read: A lender verifies three things before it issues a pre-approval: your credit, your income and your assets. Each one is checked against paper, not your word. The result is a conditional loan amount, not a promise. If you know what each check looks for, you can fix problems before they cost you a purchase contract.

What Does a Pre-Approval Actually Confirm?

A pre-approval confirms that a lender reviewed your documents and is willing to lend up to a stated amount, on stated conditions. It does not confirm the property, and it does not lock in the final terms.

Lenders use the words “prequalification” and “pre-approval” loosely. Some run a prequalification off numbers you simply tell them. Others only call it a pre-approval once they have verified your documents. So skip the label and ask a plain question: “What did you verify, and what is still open?”

Here is how the process is built. Across the wholesale programs Lendmire places files with, a standard purchase on a home you will live in allows up to 97% loan-to-value (LTV) for a first-time buyer on a fixed rate. That means 3% down. Everyone else generally tops out at 95%, which means 5% down. LTV is the loan amount divided by the home’s value. Above 80%, you pay mortgage insurance, which we cover below.

If you want the program basics first, Lendmire’s conventional loan programs page lays them out. Everything here is subject to lender guidelines and full file review.

Check One: Credit

The credit check has two parts: your scores and the report behind them. The scores set the first gate. The report explains the story.

For the wholesale conventional programs, the starting point is a 620 decision score. On an adjustable-rate loan that is manually underwritten, the floor is 640. Most files go through automated underwriting, and the automated finding governs. A decision score is the score the lender uses for the file. With more than one borrower, the lender takes a close look at every borrower’s scores, not just the stronger one.

Then the lender reads the report itself. Four things matter most:

• Payment history. Recent late payments hurt more than old ones.
• Utilization. That is how much of your revolving credit limit you are using. High balances on cards read as stress.
• Public records and serious events. Bankruptcy, foreclosure and similar events carry waiting periods. Those are agency rules. The usual wait is four years from a chapter 7 discharge, seven years from a foreclosure, and four years from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
• Accounts and inquiries. The lender wants to see a real credit history, and it notices new debt.

A hard credit pull will appear on your report. That is normal for any real pre-approval. What hurts is opening new accounts while you shop.

One practical point. A good score does not rescue a thin file in the other two checks. Credit is the first door, not the whole house.

Check Two: Income

The lender must verify income for every borrower whose income is used to qualify. Under the Fannie Mae Selling Guide’s employment documentation standard, the paperwork can come from you, your employer or a third-party vendor. The standard is the same whether the file runs through automated or manual underwriting.

For a salaried or hourly borrower, the basics look like this:

• A recent paystub dated close to your application date. It must show all year-to-date earnings and enough detail to calculate your income.
• W-2s for the most recent one or two years, depending on the income type.
• A year-end paystub showing the full year’s earnings can stand in for a W-2.

Underwriters are not just adding up numbers. They are asking whether the income will keep coming. A steady two-year history in the same field reads well. A recent move to commission pay, or a gap between jobs, invites questions and a letter of explanation.

Variable pay needs more paper. Bonus, overtime and commission income are usually averaged over time, and the lender may leave out income it cannot document. Self-employed borrowers typically document with traditional personal-income documentation and business records, which is a longer conversation than this page. The principle holds: income counts only when the paper supports it.

(The Selling Guide’s income chapter was reorganized recently, so older topic numbers you find online may not match. Search by the topic name, “Standards for Employment and Income Documentation.”).

Check Three: Assets

Assets answer a simple question: where is your down payment coming from, and what do you have left afterward? Money you cannot document does not count toward the down payment, closing costs or reserves.

Reserves are the cash you hold after closing. They show the lender you can absorb a bad month. The Eligibility Matrix ties reserve needs to your score, leverage and loan type. Stronger files tend to need less.

Bank statements are the main proof. For a purchase, the lender looks at the most recent full two-month period. For a refinance, one month. The statement must name the institution and you as the account holder. Under the Selling Guide’s rules on verifying deposits and assets, a statement that is too stale gets replaced with a newer bank-generated document. Retirement and investment accounts have their own statement windows, so ask your loan officer which ones apply.

Now the part borrowers trip over: large deposits. The Selling Guide on depository accounts defines a large deposit as a single deposit above half of your total monthly qualifying income. When bank statements support the file, the lender must evaluate it. Funds it cannot verify do not count, and any hint of borrowed money triggers more digging.

Cash from selling a car, a gift from a parent, or a tax refund all needs a trail. Show where it came from. Keep the paperwork. If you want the version of this for borrowers who qualify mostly on savings, Lendmire’s piece How to Get Pre-Approved on Assets Instead of Income goes deeper.

How DTI Ties the Three Checks Together

Debt-to-income is the number that links your income to your debts. It compares total monthly obligations, including the new mortgage payment, to your qualifying monthly income. The Selling Guide’s DTI section sets the framework.

Picture a buyer with a car loan, a student loan and two credit cards. The lender adds the minimum payments on each. It then adds the full proposed housing payment: principal, interest, property taxes, homeowners insurance, mortgage insurance if it applies, and any HOA dues. Divide that total by gross monthly income. That is the ratio.

The ceilings depend on how the file is underwritten. On the wholesale programs, automated findings allow a total ratio up to 50%. Manually underwritten loans run to 36% or 45%, with the reserve and score factors of the Eligibility Matrix. Above the lower tier, the score and reserve bar goes up. Some transactions, like cash-out refinances, carry lower limits.

This is where the three checks interact. Strong reserves and a solid score can support a borderline ratio. Fannie Mae’s own materials describe compensating factors that way, with stronger areas offsetting weaker ones.

Where the General Rules Break

The checks above are the standard path. These edge cases change the picture.

“You need a 620 score.” Sometimes yes, sometimes no. Fannie Mae removed its own minimum score for loans run through its automated system, as its selling guide announcement explains. The system now weighs risk factors directly. But that does not mean every lender will go below 620. Across the wholesale programs Lendmire works with, the starting point is still 620. Some lenders and mortgage insurers set a higher floor still. The agency rule and the lender’s rule are not the same thing.

Manual versus automated underwriting. This is the biggest split. Automated findings allow a higher total ratio. Manual underwriting is stricter on ratio, score and reserves. Your file lands in manual review when the automated system cannot give a finding, or when something about it needs a human eye.

Thin or no credit. Some borrowers have little credit history. The automated system can flag that the lender must build a history from other sources, like rent or utility payments. Home Possible and HomeReady carry an income limit of 80% of area median income. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.

Rental income on the home you buy. If your plan involves renting part of the property, that income needs documentation, such as a lease and proof rent is being paid. Occupancy drives leverage. Second homes go to 90% and one-unit investment property to 85%, versus the higher owner-occupied limits above.

Mortgage insurance. Above 80% LTV, you pay it. You can request cancellation at 80% of the original value with good payment history, no second liens and no drop in value. The servicer must end it automatically at 78%. The annual premium runs in a published range of 0.58% to 1.86% of the balance. That is a range, not a quote. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Red Flags and How to Fix Them

What Can Still Change After Pre-Approval

A pre-approval is a snapshot. The Consumer Financial Protection Bureau says these letters state how much a lender is willing to lend, based on assumptions, and are not guaranteed loan offers. It also notes that lenders may check credit when issuing either letter.

Three things can move the outcome later. The appraisal, which checks the property rather than you. A credit refresh near closing. And any new debt. Under the DTI rules, newly discovered debt can trigger re-underwriting.

So for the stretch between pre-approval and closing, the advice is boring but sound. Do not open cards. Do not finance a car or furniture. Do not move money around without a record. Keep your job, or tell your loan officer before you change it.

Here is a genuine judgment call. Some buyers get pre-approved early and then wait months before they find a house. That works if nothing changes. But a stale file, a new card or a score dip can mean redoing the review. Refreshing it before you write an offer is often the smarter play, though a short wait on a stable file can be fine.

Key Terms Defined

Pre-approval: A lender’s written statement that it will lend up to a set amount after reviewing your verified documents, subject to conditions.

Loan-to-value (LTV): The loan amount divided by the home’s value or price. A higher LTV means a smaller down payment.

Debt-to-income ratio (DTI): Your total monthly debts, including the new housing payment, divided by your gross monthly income.

Reserves: Cash and liquid assets you still hold after paying your down payment and closing costs.

Decision score: The credit score a lender uses to decide your file.

Eligibility Matrix: Fannie Mae’s grid that ties score, reserves and ratio limits to loan type and leverage on manually underwritten files.

Large deposit: A single deposit above half your monthly qualifying income, which the lender must source.

What to Do Next

If you are buying a home and want to see whether a conventional loan fits your file, Lendmire can help you compare the options and what each one asks of the file.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Selling Guide: Verification of deposits and assets

2. Fannie Mae Selling Guide: Depository accounts

3. Fannie Mae Selling Guide: Debt-to-income ratios

4. Fannie Mae consumer research flyer

5. Fannie Mae Selling Guide Announcement SEL-2025-09

6. Consumer Financial Protection Bureau: Prequalification vs. preapproval letter