US mortgage preapproval, rate locks and points before an offer

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Kooky

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A buyer in the United States is usually asked about financing before anything else. The Consumer Financial Protection Bureau, the federal agency that oversees consumer mortgage rules, says sellers often require a preapproval letter before they will accept an offer. So the mortgage has to be partly arranged before there is a house to borrow against, and that is where the vocabulary gets slippery: prequalification, preapproval, commitment, application, lock, points, credits.

Each of those words marks a different stage, and they do not all carry the same weight. A letter is not a loan offer. A conversation with a lender is not an application until six particular facts have been handed over. A locked rate is fixed only on conditions. This guide takes the stages in the order a buyer meets them, using the Bureau's consumer guidance and the text of Regulation Z, the federal regulation that holds the mortgage disclosure rules, as the Bureau publishes it. It covers the two letters, what a lender examines, how credit checks are counted, the six items that create an application, the choice of a lender, rate locks, and the trade between points and lender credits. It describes the general federal picture; what a given lender offers depends on that lender and on the loan.

Consumer Financial Protection Bureau consumer guidance, and Regulation Z, section 1026.2(a)(3), as read in October 2026.

Two letters with one purpose

According to the Consumer Financial Protection Bureau, a prequalification letter and a preapproval letter do the same basic job. Each states how much a lender is generally willing to lend, up to a set amount and on the basis of certain assumptions. A seller may read either one as evidence that the buyer is likely to obtain financing.

The Bureau is direct about the limit of both documents: neither is a guaranteed loan offer. In its guide to buying a house it describes a preapproval letter as a statement that a lender is tentatively willing to lend up to a certain amount.

What separates the two names is less clear than the names suggest. The Bureau says lenders use "prequalification" and "preapproval" inconsistently, so the label on a letter says little about the work behind it. It describes three practices that exist in the market.

The table describes habits, not definitions. The Bureau notes that some lenders offer only a prequalification and others only a preapproval. Its guidance to consumers is not to focus on the terminology at all, and to ask a local real estate agent or a housing counsellor whether the letter in hand will serve its purpose in that market. For an agent presenting an offer, the same point applies from the other side: the useful question about a buyer's letter is what the lender verified, not what the lender called it.

What a lender looks at before writing the letter

The Bureau's guide to buying a house says lenders evaluate four things when they consider a preapproval: income, assets, debts and the credit record. It does not list specific documents. Some lenders base the letter only on information the consumer provides. Others review documentation with the consumer at the start.

One thing is constant. All lenders, the Bureau says, require documentation before a loan is approved. A letter written on unverified figures only postpones that step. The Bureau therefore suggests learning early which documents a lender will want, since some take time to obtain.

Credit is part of the picture at this stage. The Bureau says lenders may check a consumer's credit when issuing either kind of letter, and that they typically do so before a preapproval. It presents that as a reason to start early: a preapproval sought ahead of a serious search can bring problems on a credit report to light while there is still time to correct them.

The Bureau lists two questions worth putting to the lender once the letter exists: which assumptions the lender made, and whether anything could later lead to a denial, a higher rate or higher loan costs.

A letter states a ceiling, not a budget. The Bureau says only the buyer decides how much to spend on a home, because a lender considers only part of a household's finances. A buyer preapproved for more than the intended budget may keep to the budget. A buyer preapproved for less may ask what limited the amount.

How long a letter lasts and what it does not bind

A preapproval letter has a short life. The Bureau says such letters can expire, typically 30 to 60 days after they are issued. A search that runs longer than that may need a fresh letter.

The letter binds the buyer to nothing. The Bureau states that getting preapproved does not commit a consumer to that lender, and it suggests waiting to choose a lender until an offer has been made on a house and a Loan Estimate has been received from each lender under consideration. The lender that wrote the letter attached to the offer need not be the lender that makes the loan.

Nor is the letter an application. The Bureau says a preapproval shows that a lender is willing to lend, pending further confirmation, and that it is not the same as applying for a loan. That distinction has legal consequences, described below, because the federal disclosure rules start with an application and not with a letter.

When the lender says no

A request for a letter can be refused, and the refusal carries rights even at this early stage. The Bureau says that if a lender evaluates a consumer's creditworthiness and the consumer does not qualify for a prequalification or preapproval letter, the lender must give an adverse action notice. That holds even though the consumer has not applied for a loan.

The Bureau's guide to buying a house sets out what a declined consumer may do next. The first step is to ask why. Where a credit score was used in the denial, the Bureau says, the lender must send a notice that gives the score and explains how to obtain a free copy of the credit report. The next is to correct any errors found on the report.

For help with improving credit, the Bureau points to housing counselling agencies approved by the Department of Housing and Urban Development.

Credit checks while comparing lenders

Comparing lenders means letting more than one of them look at a credit file. The Bureau explains what happens when they do. Each check by a lender is reported to the credit reporting companies as an inquiry. Other lenders can see inquiries when they check the same file, and an inquiry tells them the consumer may be about to take on new debt. An inquiry, in the Bureau's words, "typically has a small negative effect" on credit scores. It gives no figure for the size of that effect.

Mortgage shopping is treated differently from other borrowing. In an answer last reviewed on 28 August 2026, the Bureau says that multiple credit checks by mortgage lenders within a 45-day window count as a single inquiry. The effect on the consumer's credit is the same however many lenders are consulted, as long as the last check falls within 45 days of the first.

A worked example shows the count. Assume a buyer whose first mortgage lender checks credit on 1 September. Forty-five days after 1 September is 16 October. On the Bureau's description, checks by a second lender on 20 September and a third on 10 October fall inside the window, and the three count as one inquiry. A check by a fourth lender on 25 October falls outside it and adds a second inquiry. The dates are illustrative; the rule is the 45 days between the first check and the last.

Missing the window is not presented as a serious matter. The Bureau says a later check still adds an inquiry, but that comparing lenders is usually still worthwhile, because the effect of one additional inquiry is small.

Two related points come from the same answer. Applying for a credit card, a car loan or another loan adds an inquiry of its own that can lower scores, and the Bureau advises avoiding such applications just before and during the mortgage process. Checking one's own credit does not affect scores.

The six items that create an application

A letter can be written on a conversation. A Loan Estimate cannot be demanded until there is an application, and Regulation Z defines that word precisely. In general, section 1026.2(a)(3) says an application is the submission of a consumer's financial information for the purposes of obtaining an extension of credit. For the mortgage transactions that fall under the Loan Estimate and Closing Disclosure rules, the same section says an application consists of six things:

1. the consumer's name;
2. the consumer's income;
3. the consumer's Social Security number, to obtain a credit report;
4. the property address;
5. an estimate of the value of the property;
6. the mortgage loan amount sought.

The official commentary to the regulation, published with it by the Bureau, explains how the list works in practice. A creditor is free to ask for more: the definition does not prevent it from collecting whatever additional information it considers necessary. But once it has received the six items, it has an application for the purposes of Regulation Z. The submission may be in writing or electronic, and a written record of an application made orally counts as well.

The commentary gives two examples. In the first, a creditor's form asks 20 questions and the consumer answers nine of them without giving a Social Security number: there is no application yet. In the second, the consumer gives exactly the six items, and the creditor still wants 14 more pieces of information: there is an application all the same, and the disclosure duties in section 1026.19 are triggered.

Two smaller points complete the definition. A consumer with no Social Security number is not shut out; the commentary says the creditor may substitute whatever unique identifier it uses to obtain a credit report, and gives the example of a Tax Identification Number collected from a foreign national. And the payment of a credit report fee has no bearing on the date. In the commentary's example, the six items arrive on Monday 1 June and the fee on Tuesday 2 June. The three-business-day period for the disclosures starts on 1 June, and disclosures sent after Thursday 4 June would be late.

For a buyer, the list explains why preapproval and application are separate events. Two of the six items, the property address and an estimate of its value, do not exist until a particular home has been chosen. That is consistent with the Bureau's advice to request Loan Estimates once an offer has been made.

From Loan Estimates to choosing a lender

The Bureau's guide to buying a house treats the choice of lender as a step that comes after the offer. Put together with the definition above, the sequence runs as follows.

The last step has a deadline attached. The Bureau says that if a consumer does not express an intent to proceed within 10 business days of the lender sending the Loan Estimate, the lender can close the application as incomplete, and the consumer might have to start the application again to go ahead with that lender later. Regulation Z requires the form itself to carry the date and time, with the time zone, at which the estimated closing costs expire. The commentary adds that once the consumer has indicated an intent to proceed, that expiry line is left blank on any later revised version.

Telling a lender to go ahead is not the same as being bound to the loan. The Bureau says a borrower is not committed until the final closing documents are signed. It also says what changing course costs in practice: switching lenders means starting the loan process over, which could delay or endanger the closing. Where a lender has issued more than one Loan Estimate, the Bureau suggests stating clearly which loan is wanted.

Money usually starts to move at this point. According to the Bureau, application or appraisal fees are often charged when the consumer expresses an intent to proceed, and they might or might not be refundable if the loan does not go on.

What a rate lock fixes, and for how long

Mortgage rates move. The Bureau says they can change daily, sometimes hourly. A rate lock, also called a lock-in, is the lender's answer to that: in the Bureau's definition, it means the interest rate will not change between the offer and the closing, as long as the borrower closes within the specified time frame and there are no changes to the application.

Regulation Z's commentary puts it more formally. A rate is locked when the creditor has agreed to extend credit at a given rate, subject to the contingencies described in the rate lock agreement.

The Bureau says rate locks are typically available for 30, 45 or 60 days, and sometimes longer. When the lock is put in place varies by lender. Some lock the rate when they issue the Loan Estimate; others require the consumer to express an intent to proceed first.

The Loan Estimate shows where a borrower stands. Section 1026.37(a)(13) of Regulation Z requires a statement, labelled "Rate Lock", of whether the interest rate on the form is locked for a specific period. If it is, the form must give the date and time at which the lock period ends, including the time zone, which the commentary leaves to the creditor to determine. The same statement must say that the interest rate, points and lender credits may change unless the rate is locked. The Bureau directs consumers to the top of page 1 of the form to find it.

A lock has a cost in missed opportunity as well. The Bureau notes that a borrower with a locked rate may not be able to take advantage of a lower rate if rates fall afterwards.

When a lock runs short: extensions, expiry and float-downs

A lock that ends before the closing is the situation the Bureau's guidance is written to prevent. It advises consumers to make sure they can reasonably expect to close before the lock expires, and to choose a lock period long enough to cover the closing.

When that fails, the remedy is an extension, and the Bureau says extending a lock may be expensive. Two details make the cost hard to see in advance. A borrower who does not close in time might pay a fee to extend the lock even when the delay comes from the lender's own processing. And the Loan Estimate does not show what an extension would cost, or what a lock of a different length would cost. The Bureau's pages give no dollar figure or percentage for these fees.

Since the form is silent, the Bureau lists questions to put to the lender: whether the borrower can switch to a longer lock now, what that would cost, what the lender's policy on extensions is, and what happens if the closing is delayed and the lock expires. A worked example shows why the length matters. Assume a 45-day lock that starts on 1 October: 45 days later is 15 November. A closing set for 20 November would fall five days outside that lock, so the questions above would need answers before the lock is chosen, not after. The exact end of a real lock is the date and time printed on the Loan Estimate.

Two matters are left open by the sources used for this guide. The Bureau's pages do not describe what rate applies once a lock has expired without an extension; they advise asking the lender. And they do not mention float-down provisions, under which a locked rate could be lowered if market rates fall. This guide therefore states nothing about their terms.

Points and lender credits: the same trade in two directions

Alongside the rate itself, a Loan Estimate may show points or lender credits. The Bureau defines the two as mirror images. Points, also called discount points, let a borrower pay more at closing in exchange for a lower interest rate. Lender credits lower the closing costs in exchange for a higher interest rate.

Both are measured against the loan amount. One point equals one per cent of it: on a loan of US$100,000, one point is US$1,000. Points need not be whole numbers. On the same loan the Bureau gives 1.375 points as US$1,375, 0.5 points as US$500 and 0.125 points as US$125. Lender credits are calculated the same way and may be labelled negative points, so a US$1,000 credit on a US$100,000 loan is negative one point.

The Bureau says where each appears. Points are listed on page 2 of the Loan Estimate and of the Closing Disclosure, in Section A. Lender credits appear as a negative number on the "Lender Credits" line in Section J of the same page. The Bureau then gives one example that shows the trade in both directions.

The figures tie together: 0.375 per cent of US$180,000 is US$675. The Bureau does not publish a break-even calculation. What follows is this guide's own arithmetic on the Bureau's two figures, not a result the Bureau states. Dividing US$675 by about US$14 a month gives about 48 months, or roughly four years. A borrower in this example who paid the points and kept the loan for three years would have saved about US$504 in payments, 36 times US$14, against US$675 paid, and would be about US$171 behind. One who kept it for five years would have saved about US$840, 60 times US$14, and would be about US$165 ahead. The credit works the same way in reverse: after about four years, the extra monthly payments exceed the US$675 received at closing. These results are the guide's arithmetic and are approximate, because the Bureau gives the monthly figure as "about" US$14.

That arithmetic is consistent with the Bureau's general statement that points tend to make sense for a borrower who plans to keep the loan a long time. For a borrower who is unsure, it suggests asking a loan officer to compare the options with and without points or credits over the shortest, the longest and the most likely period the loan might be kept.

The Bureau adds two cautions about comparison. Lenders may use the word "points" for any upfront fee calculated as a percentage of the loan, so it is worth confirming that the points shown actually reduce the rate. And offers from different lenders are only comparable when they carry the same number of points or credits: a lower rate bought with points is not a cheaper loan than a higher rate without them until the upfront cost is counted.

What can still change before closing

Between the Loan Estimate and the closing, the figures a buyer relied on can move for reasons the sources above identify.

The first is an unlocked rate. The statement Regulation Z requires on the Loan Estimate says so in terms: the interest rate, points and lender credits may change unless the rate is locked. For an adjustable-rate loan the regulation adds a detail about the rate on the form itself. The rate disclosed is the one that will apply at consummation, the moment the borrower becomes bound to the loan; where that is not yet known, the form shows what the regulation calls the fully-indexed rate.

The second is a change to the application, which can alter even a locked rate. The Bureau names the loan amount, the credit score and verified income, and gives four examples: the borrower chooses a different kind of loan or a different down payment; the appraisal of the home comes in higher or lower than expected; the credit score changes because the borrower took out a new loan or missed a payment; or the lender cannot document overtime, bonus or other income.

The third is time. A lock that expires before the closing can bring an extension fee, and a Loan Estimate left without an intent to proceed for 10 business days can lead the lender to close the file.

How far the closing costs themselves may rise above the Loan Estimate, and when a lender may issue a revised one, is governed by separate limits in section 1026.19 of Regulation Z that this guide does not cover.

A letter opens the door to an offer. The loan itself begins later, with six facts and a form.

Kooky, from Shaka

Kooky edits Agents Estate and builds Shaka, the payment router he made for real estate professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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