Getting pre-approved before looking for a home is always a good idea. Pre-approval helps you set a realistic house budget and provides you with credibility as you look at homes and make offers. After all, the last thing you want is to have the offer on your dream home denied because you didn’t take the time to get pre-approved.
Below, we’ll explore pre-approval in-depth, along with some reasons to get pre-approved early in your home-buying process.
What is a Mortgage Pre-Approval?
A pre-approval letter from a lending institution states that the lender is willing to lend you up to a certain amount of money for a home purchase. It’s verification to all involved parties that you’re creditworthy and should have no trouble obtaining a mortgage when the time comes.
Lenders pre-approve customers after they complete mortgage applications. Lenders verify everything you submit and run a credit check to determine if you meet their lending criteria. If everything checks out, your lender will give you a pre-approval letter. Along with an amount, the letter may or may not specify interest rates. It’s not a finalized contract, but it’s the next best thing at this step in the process.
Since financial situations, housing markets, and mortgage rates change, pre-approval letters are usually only valid for 60 to 90 days. After that, you may need to have the letter renewed or reapply. Getting pre-approved can take as little as one day or up to 10 days.
Should I Get Pre-Approved Before Hiring a Realtor?
Realtors work with clients in all stages of the home-buying process. So, yes, you can hire a realtor before pre-approval. In fact, a good realtor can help you find a mortgage company and offer advice before your pre-approval. They can even send you links to listings and give you access to any special home databases their company uses.
When hiring a realtor, be sure to communicate what stage of the process that you’re in. If you aren’t pre-approved, the realtor might request that you get a pre-approval letter before setting up tours. After all, realtors only make money when a contract is finalized. They may not be willing to show homes to a client who can’t prove they’ll have funding when the time comes to make an offer. Also, sellers typically don’t want people walking through their home unless they are ready and able buyers, which means you should have your pre-approval letter before visiting homes.
Getting your pre-approval letter before hiring a realtor—or at least early on while working with a realtor—shows them that you’re serious about buying a home. They may be more motivated to show you properties and invest time in helping you find your new house.
Can I Make an Offer On a Home Without Pre-Approval?
Legally, you can make an offer on a home without pre-approval. However, in most cases, home offers are meaningless without pre-approval, especially in a seller’s market. Winning offers come with pre-approval letters attached. Most buyers won’t take your offer seriously if you aren’t pre-approved.
One notable exception is for buyers planning an all-cash transaction. Pre-approval letters are meaningless in this situation because the buyer isn’t planning to obtain a mortgage to purchase the home. In lieu of a pre-approval letter, cash buyers can use a proof of funds letter from their bank or attach recent bank statements to their offer letter.
Can I Look at Houses Online Before Getting Pre-Approved?
Yes, you can look at houses online before getting a pre-approval letter. Your realtor may even send you personalized listings to check out online too. Just keep in mind that if you encounter a house that you’d really like to see in person, you may need to get that pre-approval letter before your realtor will set up an appointment. Since the process can take up to 10 days, by the time you have that letter, the house you fell in love with online might not be available anymore.
Benefits of Pre-Approval Letters
Getting pre-approved will help your home-buying experience run more smoothly. You’ll avoid mistakes such as looking at homes far outside your budget. You’ll also be taken seriously by buyers when you set up appointments to see their homes.
Other benefits include:
- Shows you how much home you can afford so that you don’t waste time looking at homes you can’t afford
- Helps you determine your down payment
- Gives you credibility when you make an offer
- Makes you look more appealing than potential buyers who aren’t pre-approved
- Inspires confidence in your realtor that you’re serious about purchasing a home
Things to Keep in Mind with Pre-Approval Letters
Getting your pre-approval letter early is helpful. However, there are a few things to be aware of:
- Mortgage pre-approval can affect your credit score because lenders run a hard credit inquiry, which may lower your score by five points or fewer.
- A pre-approval letter is not a binding contract, so you aren’t guaranteed the full mortgage amount.
- You do not have to borrow the full amount that you’re pre-approved for. You can borrow less, resulting in more manageable monthly payments.
- You aren’t tied to your pre-approval lender. Before closing, you can still switch lenders to receive a better rate or terms.
- Pre-approval letters expire after a specified period of time as determined by the lender.
Final Thoughts on Pre-Approval Letters & Looking at Homes
You never know when you’re going to find the home that checks off all the boxes on your list. By securing a preapproval letter early on, you gain a little more control in your home-buying journey. Realtors will take you seriously, and buyers will be more likely to take your offers seriously when you can back them up with proof of financing.
FAQs on Getting Pre-Approved Before Looking at Homes
What’s the difference between pre-approval and pre-qualification?
A pre-qualification is based on self-reported financial information and provides buyers with an estimate of how much money they may be pre-approved for and at what interest rate. Pre-approvals are customized quotes that require hard credit checks and verifiable financial information.
What credit score is needed for mortgage pre-approval?
Most lenders require a credit score of 620 or higher for a conventional loan and a score of at least 580 for an FHA loan. However, to secure the best rates, you’ll need a credit score of 760 or higher.
What documents do you need for pre-approval?
Lenders require proof of income, proof of assets, good credit, employment verification, and personal documentation, such as your driver’s license and Social Security number.
Can I look at houses that cost more than my pre-approval?
Yes, you can look at houses that cost more than what you’re pre-approved for. However, if you make an offer, you may need to prove to the seller that you can afford the difference. A proof of funds letter from your bank or bank statements can support your offer.