Is a Mortgage Pre-Approval Necessary?

Do you need a mortgage pre-approval letter to make an offer on a house? You know you need to get your ducks in a row before looking at homes, but does that include securing a pre-approval letter from a lender?

The truth is, getting pre-approved can actually improve your chances of falling into the sellers’ good graces, so you want to get it done as soon as possible in the home-buying process.

So how organized do your financials need to be before you start looking? Let’s take a look, starting with clarifying what a pre-approval letter actually is.

What is a pre-approval letter?

Mortgage pre-approval is assurance from a lender to provide you with financing to buy a home up to a certain loan amount. It’s a letter from your lender, on the lender’s letterhead, that states that you have approval for a loan of a specific dollar amount.

To get approval, your lender will collect paperwork from you that will include pay stubs, federal tax returns, W2s, investment accounts, and residential history. Once your lender analyzes your financial story, they will decide whether or not to issue you a pre-approval letter.

Do you need a pre-approval letter to see a house?

Real estate agents prefer showing homes to buyers with a pre-approval letter, because it shows the buyer is financially capable of purchasing. Agents want to know if you can really buy a home, a pre-approval letter isn’t mandatory to tour a home.

All agents have permission to show you homes, even if you do not have a pre-approval letter. It just might not be in their best interest, so you may get some push-back if you say you don’t have pre-approval.

How a pre-approval letter benefits you.

If you don’t take the time to get pre-approval letter, you’re wasting your time and your agent’s time. There is no sense in wasting time to see homes until you are ready to purchase.

Getting a pre-approval letter should be one of your first steps in the home-buying process. Then when you see something you like, you can act on it. As a buyer, that ability to act quickly gives you an edge.

How to get a pre-approval letter.

Serious about getting serious? Here’s how to get started.

  • Fill out an application. This can be done in person, online or over the phone.
  • The lender runs a credit check to get your FICO score.
  • It also determines your expenses and income by looking at your financial portfolio.
  • They then determines if you qualify for a loan, and if so, what kind and for how much.
  • Finally, the lender puts this in writing as the pre-approval letter.