3 Things You Need to Know About Mortgage Pre-Approval
by Maurie Backman | Published on Aug. 16, 2021
On the fence about getting pre-approved for a mortgage? Here are some things you need to know.
There are certain steps it pays to take when you embark on a home search. You should spend some time interviewing real estate agents, make a wish list of the home features you're looking for, and get pre-approved for a mortgage. Some buyers, however, don't take that final step, either because they don't know about it or because they don't understand how it works. Here are a few things you should know about mortgage pre-approval.
1. It doesn't guarantee you a home loan
You might assume that if a mortgage lender pre-approves you for a home loan, you're automatically guaranteed that mortgage once you're ready to sign it. But that's not the case. Mortgage pre-approval is not the same as getting an actual mortgage, and if your financial circumstances change between the time you're pre-approved and the time you want to apply for a home loan, you may be denied.
Still, getting pre-approved is a step in the right direction. And if nothing changes for the worse, financially speaking, then there's a strong chance you will get a mortgage once you want one.
2. It can make for a more efficient home search
When you go through the pre-approval process, a lender gives you a specific amount that you can borrow based on your income and the funds you have available for a down payment. Having that number is important because it can help you avoid looking at homes that are outside of your price range.
3. It could help you beat out another buyer in a bidding war
Because housing inventory is so limited these days, many homes that do get listed wind up subject to bidding wars, where two or more buyers attempt to outbid each other in the hopes of getting an offer accepted. And having a pre-approval letter could be your ticket to success in such a situation.
When you come in with mortgage pre-approval, it sends a message to a seller that you're a serious buyer whose finances have already been vetted by a lender. That should give your seller some reassurance that you're in a good position to get a mortgage, even though pre-approval doesn't actually guarantee you a home loan. And that, in turn, could prompt a seller to accept your offer over another.
How to get pre-approved for a mortgage
Once you're ready to start looking at homes to buy, reach out to mortgage lenders and seek out pre-approval. As part of the process, you will need to provide some basic financial information, including recent pay stubs that serve as proof of income, bank account statements, and a list of your existing debts. The good news, however, is that you'll also need those items when you apply for an actual mortgage, so you'll get that legwork done early.
Keep in mind that a mortgage pre-approval letter will usually expire within 30 to 90 days, so it's best to seek one out only when you're really ready to start your house hunt. You can also shop around for pre-approval with different lenders, as one may pre-approve you for a higher loan amount than another. That could work to your advantage in a bidding war.
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