Should you get a Pre-Approval Letter

Should you get a Pre-Approval Letter?

Yes! Before you embark on your home shopping journey, I would strongly advise you to get a mortgage pre-approval letter. This step is crucial in the homebuying process as it helps establish your budget and gives you a clearer understanding of what you can afford. Moreover, in a competitive real estate market, not having a pre-approval letter could diminish your credibility with sellers. By taking this important step, you demonstrate your seriousness as a buyer and increase your chances of finding the perfect home.

So what is mortgage pre-approval?

A mortgage pre-approval provides you with a document from the lender that outlines their offer and terms for a mortgage, including loan amount, monthly payments, and interest rate. This serves as a promise from the lender that, unless your financial circumstances change, you can rely on being approved under these conditions when you're ready to make your purchase.

Let me clarify the difference between a mortgage pre-approval and a pre-qualification. While these terms are often used interchangeably, they carry distinct meanings. When you're pre-qualified for a mortgage, a lender will assess your eligibility based on the information provided by you without conducting a hard credit check. They will give you an approximate idea of how much you may be able to borrow. At this stage, there is no need for you to submit any documents to validate the accuracy of the information provided.

When you’re getting pre-approved, a lender will verify your creditworthiness. You’ll need to complete a mortgage application and provide documents such as your recent pay stubs, bank statements and tax returns. The lender will also perform a hard credit pull, meaning your credit score can temporarily drop a few points.

Your pre-approval letter’s expiration date can also vary by lender, but most allow you 30 to 90 days to shop for a home and officially apply for a mortgage.

Why you should get a mortgage pre-approval letter?

You want to get a mortgage pre-approval at the beginning of your homebuying journey for two reasons:

It’s the best way to learn your maximum loan amount.

A pre-approval will give you the most accurate number compared to other online methods. It's essential to know your price range and which houses are within reach. Although it can be disappointing if a lender offers a lower amount than expected, it allows you to reassess your finances or save more for a down payment before moving forward in your homebuying journey.

You will be taken as a serious buyer!

A pre-approval letter for a mortgage can give you a significant advantage in the housing market. It shows that you are able to secure financing, which makes you more appealing to sellers and real estate agents, especially in competitive markets.

To maximize your advantage, it is recommended to obtain pre-approval letters from multiple lenders. Your home purchase is likely one of the biggest investments you will make, so even a slight difference in interest rates can result in substantial savings. Shopping around for the best terms is definitely worth it.

Additionally, don't be concerned about multiple credit inquiries affecting your credit score negatively. When applying with several mortgage lenders within a short period of time, these inquiries are typically counted as a single inquiry by credit scoring models.