Homeownership Made Simple — Episode 10

by Tu Familia Real Estate

Why Getting Pre-Approved Should Come Before House Hunting

Looking at homes is usually the exciting part of buying.

But before you start touring properties, there is one step that can make the entire process easier: getting pre-approved for a mortgage.

A mortgage preapproval gives you an estimate of how much a lender may be willing to lend based on information about your income, assets, debts and credit. It isn't a final loan approval, but it can help you establish a realistic price range and show sellers that you've already taken steps toward financing.

Preapproval Helps You Set a Realistic Home Search

Online mortgage calculators can be useful, but they don't know your complete financial situation.

A lender can look more closely at your finances and help estimate:

the loan amount you may qualify for
potential loan programs
an estimated monthly payment
expected down payment
estimated closing costs and cash needed

That means your home search can start with a much clearer understanding of your numbers.

And remember: the maximum amount a lender is willing to lend isn't necessarily the amount you should spend. Your own monthly budget still matters.

It Can Help You Catch Problems Early

Getting pre-approved isn't only about finding out how much you can borrow.

It can also reveal issues that may need attention before you make an offer.

A lender might identify questions involving credit, income documentation, debt, available funds or another part of the financing process.

Finding those issues before you're under contract gives you more time to address them rather than discovering them while the closing clock is running. The CFPB specifically notes that an early preapproval can uncover potential problems while there is still time to correct them.

Sellers Want to Know You Can Finance the Purchase

When you submit an offer using mortgage financing, the seller isn't only evaluating your price.

They also want confidence that the transaction has a reasonable chance of closing.

A preapproval letter tells a seller that a lender has reviewed at least some of your financial information and is tentatively willing to lend up to a stated amount. Sellers frequently expect buyers using financing to provide one with an offer.

That doesn't guarantee your loan will ultimately be approved, but it makes your offer more complete.

Preapproval Is Not Final Loan Approval

This distinction matters.

A preapproval is based on assumptions and information available at that point in time.

Your final mortgage approval can still depend on things such as:

verification of your financial information
the property and its appraisal
loan-program requirements
changes to your income, assets, debts or credit
underwriting approval

So once you're pre-approved, avoid making significant financial changes without talking to your lender first.

Prequalification and Preapproval Aren't Always the Same Thing

You'll hear both terms.

Unfortunately, lenders don't use them consistently.

Some lenders call a preliminary review a prequalification, while others use preapproval. Some verify documentation before issuing a letter; others may rely more heavily on information supplied by the borrower.

Rather than focusing only on the terminology, ask the lender what they actually reviewed before issuing the letter.

You Don't Have to Use the First Lender Who Pre-Approves You

A preapproval doesn't lock you into that lender.

In fact, the CFPB recommends contacting multiple lenders and comparing mortgage options. Once you have a property under contract, official Loan Estimates allow you to compare rates, fees and terms more meaningfully.

That means you can get prepared for your home search while still shopping for competitive financing.

How Long Does a Preapproval Last?

Preapproval letters often have expiration dates.

The CFPB notes that lenders commonly issue them for roughly 30 to 60 days, although practices vary. If your home search takes longer, your lender may need updated financial information before issuing a new letter.

Why We Recommend Doing This Before Touring Homes

Starting with financing helps keep the home search focused.

Instead of finding a house you love and then asking whether the numbers work, you can begin by understanding:

What price range makes sense?
What might the monthly payment look like?
How much cash might I need?
Which financing programs should I consider?

Then we can concentrate on finding the best home within those parameters.