A pre-approval will help you gauge your readiness to buy a home. Lenders provide pre-approval letters detailing the loan amount each borrower can expect to be approved for with a real mortgage.
The pre-approval amount is based on your income, debt-to-income ratio (DTI), assets, and other factors. It’s more intensive than a mortgage pre-qualification because the lender verifies the information. When choosing between prequalification or preapproval, that pre-qualification is based on your self-reported information and is not vetted or verified by a lender.
The Benefits Of Mortgage Pre-approval
Getting pre-approved for a mortgage comes with two main benefits. The first is that you’ll know how much you can realistically afford when buying a home. The pre-approval process is very similar to the actual mortgage application process. It gives you a chance to assess your credit score and finances if you feel you’ll need a higher amount to purchase a home in your area.
The second major benefit is that showing up with a pre-approval letter in hand lets agents and buyers know you’re serious. Some agents won’t work with sellers who don’t have pre-approvals. Some sellers are reluctant to accept offers from buyers without pre-approvals. In many ways, getting pre-approved is the true first step to buying a home.
Additional Considerations
There isn’t a downside to getting a pre-approval letter if you’re truly ready to begin your buying journey. However, you should first check your credit score to make sure you’re at a point where you’re likely to be approved.
This gives you an opportunity to dispute mistakes that are hurting your score before a lender sees them first. Use a mortgage calculator to help you get an idea of what to aim for in your approval amount.Â
A Hard Pull On Your Credit Report
Mortgage pre-approvals require hard pulls on your credit. The lender will do a hard credit inquiry that could negatively impact your credit score. A hard pull will only deduct a few points from your credit score temporarily.
If you are obtaining multiple pre-approvals to rate shop, keep the inquiry period concise. All of the hard pulls for pre-approval applications will only “ding” you a single time as long as they are conducted for the same loan within a 45-day period.
You Can Still Be Denied After Pre-approval
You can be denied a loan after pre-approval if there are any drastic changes with your finances, employment, or credit score. Keep your finances identical to how they looked on the day you submitted your pre-approval information to avoid disappointment. Making a large purchase or taking out a new loan could cause your mortgage application to be denied after what seemed like a breezy pre-approval.Â
