Do I really need a mortgage pre-approval?
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September 27, 2022

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Do you need a mortgage pre approval before going house hunting? No, but a preapproval is an essential first step and can help home buyers gain an advantage over buyers without one. 

Many sellers in today’s market expect buyers to come prepared with a mortgage pre approval before making an offer.

Potential home buyers will need to provide documentation to prove their creditworthiness, employment, salary, and other various documentation to be pre-approved for a mortgage. 

A lender will request these requirements during the closing process, so getting a pre-approval is a great way to get ahead.

What is a mortgage preapproval?

A mortgage preapproval letter states that a lender is potentially willing to give a buyer a mortgage for a home up to a certain price. 

Getting a mortgage pre approval means a buyer has been vetted by a lender, usually using a combination of factors, including credit score and income, to determine how much they would lend them.

A mortgage preapproval is the first step when buying a home where a buyer works with a mortgage lender to find out how much home they can afford.

How does a preapproval differ from an approval?

While a preapproval is one of the most important first steps you can take as a home buyer, it is not a guarantee of a mortgage approval. 

When a buyer applies for a mortgage, the mortgage lender will respond with a letter outlining the preapproved loan amount, type of mortgage, estimated closing costs, and more. You can also apply for preapproval with multiple lenders. 

When it comes time to close, the buyer’s information will be passed on to a loan underwriter. The underwriter will then fully inspect the buyer’s financials. If nothing major has changed since the loan was applied for, then the loan can be officially approved and move on to closing.

The preapproval differs from approval in that the loan process has begun at the preapproval stage but is not complete. The lender has the final decision on approval and closing. 

How does a mortgage preapproval help me?

A mortgage preapproval is essential for buyers. They offer numerous benefits that home buyers can enjoy. 

Having a preapproval letter shows that you’re serious about home buying to sellers. It also helps you, the homebuyer, better understand your purchasing power and the price of homes you should be looking for. 

Having a preapproval gives the buyer bargaining power when making an offer. The process of finding a mortgage lender has already begun; therefore, the buyer can make an offer they know is within their budget and backed up with financing available. 

Having a preapproval is attractive to sellers and gives buyers a leg-up on competition that does not have a preapproval. Sellers are more likely to think a deal will go through if a buyer has already been vetted through the preapproval process.

what you need to qualify

How do I get a mortgage preapproval?

If you’re ready to buy a home, you can work with a broker, who will help you find a lender, or directly with a lender to begin the preapproval process.

Essentially you will be asked to fill out a mortgage application. 

The lender will take an overview of your finances to determine how much of a mortgage loan they would be willing to give you. 

As a buyer, you should be prepared to make available proof of income, proof of assets, employment verification, and, most importantly, a credit disclosure form so the lender can run your credit score.

Each lender will vary, but essentially they are evaluating a buyer’s creditworthiness through their credit score and debt-to-income ratio (DTI). The higher a buyer’s credit score and the less debt they have, the higher their purchasing power. 

For first-time and even experienced home buyers, there has never been a better time to start the process. 

Many lenders offer their mortgage prequalification online, so you don’t even have to leave home to begin the home-buying process. 

First-time homebuyers would do especially well using a preapproval mortgage calculator. There, you can experiment with the purchase price and interest rates to estimate what monthly payments may be. Buyers can use this information to get a more realistic idea of how much house they can afford and know what type of mortgage to shop for.

Can my preapproval expire?

Preapproval does not last forever. Typically a preapproval is good for 60-90 days but will vary by lender. 

It’s important to get a preapproval at the start of your home buying process, but only when you know for sure that you’re ready to make a purchase.

Typically, you can ask for an extension if the home shopping process takes longer than the 60-90 days. 

However, you may need to submit all your financial information again and the terms of the preapproval could change due to any changes in credit score or income.

What do I need to do to prepare?

In order to prepare for a mortgage preapproval a buyer should have a good idea of their financial portfolio. The best way to prepare for a preapproval is to clean up your credit. 

Good credit will get buyers the best interest rates. A lower credit score will lead to higher interest rates and having to put more money down. 

Paying down any debt before starting the home-buying process will better a buyer’s chances of getting a more favorable interest rate. You can also request a free credit report from any of the three major credit bureaus once a year.

A buyer should also have proof of their income and assets when applying for a mortgage preapproval. 

In order to get approved for a mortgage loan, borrowers need to prove they can provide: 

  • A down payment
  • Closing costs
  • Cash for other closing contingencies 

While all of these may not be fully scrutinized during the preapproval process, they will absolutely be required during the closing process. It’s good to have everything prepared ahead of time to increase your chances of getting approved.

If the lender has all your information up front, current, and accurate, they’ll have everything they need to close the loan.

Once a buyer obtains their preapproval, they may find they need to increase the amount. A buyer can do this by putting more money down to afford a more expensive home, paying off debt, or even adding a co-borrower.

Get preapproved with Austin Capital Mortgage

The bottom line is that, while not required, a preapproval is an essential first step in the home buying process. 

It gives the buyer a complete picture of how much they can borrow, establishes a relationship with a lender, and shows sellers you’re serious about making an offer and following through. 

If you’re ready to make a home purchase, reach out to our lending experts and begin the mortgage preapproval process.

Photo by RODNAE Productions

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