3 Reasons Pre-Approval Can Pay Off When Shopping for a Home

Mortgage pre-approval could help you get the home of your dreams.

If you are considering buying a home, you should get mortgage pre-approval first. This involves providing financial credentials to a lender. The lender will review your details and let you know if you're approved, how much you can borrow, and what rate you'll be offered. You'll typically have the chance to lock in your rate for a set period of time. And you'll be given a pre-approval letter.

Pre-approval doesn't guarantee you a loan; things can still change. And the process of getting mortgage pre-approval can take time and seem like a hassle. But there are three reasons why it's important to go through with it. Here's what they are.

1. You won't waste time shopping for properties you can't afford

Mortgage pre-approval gives you the opportunity to see how much money a lender will let you borrow based on your specific financial situation. By finding out the maximum amount you're allowed to borrow, you won't waste time looking at homes that are too expensive for you.

Remember, though, you do not have to borrow the full amount your mortgage lender allows. You'll want to look at the costs of the loan you've been pre-approved for to make sure the monthly payments fit in your budget and you're comfortable with the total interest you'll pay over time.

You may decide you want to borrow less than you've been approved for, and that could be a smarter financial move in some circumstances. But pre-approval can still help you figure this out by giving you insight into what a loan could cost you.

2. You'll be well-prepared to make an offer

Most of the time, when you make an offer on a home, the sellers want you to include a pre-approval letter. This gives them peace of mind because they know a bank has evaluated your financial credentials and you're likely to be approved for the home loan if they accept your offer.

In today's competitive real estate market, you'll likely need to be ready to make an offer quickly if you see a home you like. And you don't want to miss out on a house you love because the sellers require a pre-approval letter that you don't yet have. You can avoid this by getting pre-approved early in the process of shopping for properties.

3. You can get to the closing process quicker

It can take time to close on a home. If you get pre-approved, then a lot of the upfront legwork will have been done before you actually make an offer. As a result, you can usually get to closing quicker. Being able to offer a shorter closing timeline can make your offer more attractive to sellers. It can also get you into the house faster so you can start enjoying your new space.

With so many benefits of pre-approval and essentially no downsides, you should prioritize going through this process if you are considering making a home purchase soon.