Do I Need A Mortgage Pre-Approval Letter To Make An Offer On A Home?

So, you’ve decided to take a dive into the housing market and look for your dream home. Where do you begin? Many realtors and homebuying experts suggest starting with a mortgage pre-approval letter. But is it really necessary? Let’s dive in.

What is a pre-approval letter?

A pre-approval letter is a document you'd get from a lender if you are interested in buying a home. It indicates they have pre-approved you for a loan up to a specific dollar amount (for instance, up to $600,000) based on two things: how much money you make and your credit score.

Simply speaking, a pre-approval letter is an assurance in writing from the lender for a loan based on your financials. The process to get a pre-approval letter can be quite quick.

Is pre-approval the same as pre-qualification?

A mortgage pre-qualification is not the same as a mortgage pre-approval. The process of determining the approximate amount that someone can borrow based on the income and debt information provided, without actually verifying any details, is known as pre-qualification. A pre-qualification is only an estimate and not a guarantee of loan approval.

Once the borrower is pre-qualified for a mortgage, they can choose to apply for a pre-approval for a mortgage. The actual credit worthiness of the borrower is only determined once the lender runs a formal review of the income and debt of the borrower, including running a hard credit check which can impact their credit score.

A buyer provides the pre-approval letter alongside an offer they make on a house. Once your offer is accepted, there is a vigorous underwriting process by which a lender makes a final decision on the loan amount and interest rate they can offer to you.

Is a pre-approval letter necessary to make an offer on a home?

While a pre-approval letter is not mandatory to make an offer, realtors often prefer to show homes and work with buyers that have a mortgage pre-approval from a lender. There are a few reasons for this. One, it indicates to the prospective seller as well as the realtor that the buyer is serious about the homebuying process, and also financially capable.

What are the advantages of getting a pre-approval letter?

A buyer with a pre-approval letter knows the exact value of a home they can afford, saving them from frustration and embarrassment of making an offer on a home they can’t really buy. It also allows them to focus their efforts on neighborhoods and homes that fit their budget before diving into the entire process. Most importantly, a mortgage pre-approval letter lets a buyer know if their credit score is mortgage-ready or if things need improving.

Read Next: Can I Back Out of Buying a House Before Closing?

Join our newsletter!

We're constantly keeping up with the latest real estate trends and news - let us keep you in the loop!

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Further reading

Best-performing REIT stocks last month

Let's see the best performing REIT stocks in June...

U.S. Weekly Real Estate Update

Let's see what's going on with the market this week...

U.S. Weekly Real Estate Update

Let's see what's going on with the market this week...