How Do I Get Pre-Approved, and What Are Closing Costs?

Watch: How Do I Get Mortgage Pre-Approved?

Buying a home starts with understanding what you can afford—and what you’ll need to bring to the closing table. Two common questions buyers ask are, “How do I get pre-approved?” and “What are closing costs?”

Here’s how both work and how to prepare.

What Does It Mean to Get Pre-Approved?

A mortgage pre-approval is a lender’s initial assessment of how much you may be able to borrow. The lender reviews your finances, including your income, credit, debts, and assets.

If you qualify, you’ll receive a pre-approval letter that can help you set a realistic price range and show sellers you’ve taken steps to secure financing.

Pre-approval isn’t a final loan commitment. Your loan still needs to meet the lender’s requirements, and the property you choose must qualify, too.

How Do I Get Pre-Approved?

Start by contacting a mortgage lender. You can compare banks, credit unions, and mortgage companies to find a lender and loan options that fit your situation.

Gather your financial documents. Lenders commonly request:

• Recent pay stubs.

• W-2s and tax returns.

• Bank and investment account statements.

• Identification.

• Information about debts and other financial obligations.

If you’re self-employed or have income from multiple sources, the lender may request additional records.

Complete the application and authorize a credit review. The lender will use this information to evaluate your borrowing qualifications. Ask about the estimated monthly payment, cash needed to close, and any assistance programs that may be available.

Review your pre-approval letter. Make sure you understand its expiration date and any conditions. Your maximum approved amount may be higher than the payment you’re comfortable making, so build your home search around your own budget.

Once you’re pre-approved, check with your lender before opening new credit accounts, making large purchases, moving substantial funds, or changing jobs. Financial changes can affect your eligibility before closing.

What Are Closing Costs?

Closing costs are the expenses involved in obtaining a mortgage and completing the purchase of a home. They are generally separate from your down payment.

Depending on your loan and property, these expenses may include:

• Lender charges: Fees for originating, processing, or underwriting the loan.

• Appraisal fee: The cost of evaluating the property’s value.

• Title and settlement charges: Costs associated with reviewing ownership records, title insurance, and handling the closing.

• Government charges: Recording fees and applicable transfer taxes.

• Prepaid expenses: Items such as homeowners insurance premiums and mortgage interest.

• Initial escrow deposits: Funds collected for certain future property tax and insurance payments.

Some expenses, such as a home inspection, may be paid before closing. Ask your lender and settlement professional which costs are included in their estimates and when each payment is due.

How Much Should I Budget for Closing Costs?

A common planning range is about 2% to 5% of the purchase price, although your actual costs can fall outside that range.

For a $300,000 home, that would mean roughly $6,000 to $15,000 in closing costs, in addition to your down payment.

Your total will depend on factors such as your loan type, location, lender fees, insurance costs, taxes, and the timing of your closing.

Your cash to close is a different figure: it includes your down payment and closing costs, adjusted for your earnest money deposit, applicable credits, and other transaction details.

When Will I Know My Actual Costs?

For most home purchase mortgages, your lender must provide a Loan Estimate within three business days of receiving your application. It outlines estimated loan terms, monthly payments, and closing costs.

You’ll also receive a Closing Disclosure at least three business days before closing. This document shows your final loan terms and closing costs.

Review these documents carefully. Ask your lender to explain any changes, unfamiliar fees, or amounts that differ from what you expected.

Can I Get Help Paying Closing Costs?

Depending on your circumstances, possible options include:

• Seller credits: A negotiated contribution toward eligible costs, subject to loan program limits.

• Lender credits: An arrangement that may reduce upfront costs in exchange for a higher interest rate.

• Buyer assistance programs: State or local programs that may help eligible buyers with down payments or closing costs.

• Gift funds: Assistance from an eligible donor, when permitted and properly documented under your loan program.

Discuss these options with your lender early. Availability and eligibility vary, and some assistance comes with repayment requirements or other conditions.

Start With a Clear Budget

Getting pre-approved helps you understand your financing options. Planning for closing costs helps you prepare for the full amount you’ll need to complete your purchase.

Before you begin touring homes, talk with a lender about a comfortable monthly payment and your estimated cash to close. Having both numbers in hand can make your home search more focused and help you move forward with confidence.

Thinking about buying a home in Virginia, North Carolina, or Maryland? Let’s talk about your goals and the next steps toward finding your home.

Helpful resource: Consumer Financial Protection Bureau: Mortgage documents before closing.