3 Traps to Avoid When Getting Pre-Approved for a Mortgage

Couple looking over paperwork together in the kitchen.

Image source: Getty Images

Many or all of the products here are from our partners that compensate us. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.

Steer clear of these at all costs.

Key points

  • A mortgage pre-approval letter could give you an edge if you're up against other buyers for the same home.
  • It's important to understand what your pre-approval letter means, run your own calculations when determining how much to borrow, and shop around for the best mortgage rate available.

If you're looking to buy a home, you may have heard that it's a good idea to get a mortgage pre-approval letter before kicking off your search. That's pretty solid advice.

In today's real estate market, housing inventory is extremely limited, and buyers are frequently battling over existing homes in the form of bidding wars. Having a pre-approval letter in hand could give you an edge over another buyer and convince a seller to accept an offer you make over a competing one.

But if you're going to get a pre-approval letter, it's important to steer clear of these three pitfalls.

1. Assuming your mortgage is guaranteed

Having a pre-approval letter means a mortgage lender has reviewed your finances and determined what amount you should be in a position to borrow for home buying purposes. But to be clear, having that pre-approval letter in hand does not guarantee that you'll actually get a mortgage.

A number of things could happen from the time you get that letter to the time you need an actual home loan that cause your application to get rejected. For one thing, you could lose your job, which would make a lender hesitant to move forward with a mortgage. Your credit score could also drop substantially following a late payment on your part, causing a lender to deny you a loan.

Therefore, it's important to treat your pre-approval letter as a starting point on the road to getting a mortgage, not a sure thing. But if your financial picture doesn't change for the worse between obtaining that letter and submitting an official mortgage application, then there's no reason to think you won't get the financing you need to buy a home.

2. Assuming you should plan to borrow the amount you're pre-approved for

Lenders use a formula to determine what loan amount you're eligible for that's based on factors like your income and funds available for a down payment. But just because a lender says you're pre-approved for a specific loan amount doesn't mean that's the right amount to borrow.

You may have certain expenses that your lender doesn't know about or factor into its formula, like childcare costs, that will force you to spend more conservatively on a home. Rather than plan to automatically borrow the amount you're pre-approved for, run your own numbers with a mortgage calculator and see what works best for your finances.

3. Automatically signing a mortgage with the lender that pre-approves you

Getting a pre-approval letter does not obligate you to sign a mortgage with the lender that issues it. It may be the case that a different lender can offer you a better interest rate or terms on a mortgage, so don't hesitate to shop around even if you have a pre-approval letter in hand. Doing so could result in big long-term savings.

Obtaining a pre-approval letter could give you a leg up in the course of searching for a home. Just be sure to avoid these traps after receiving one.

Our Research Expert