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Finance

Do I Need a Pre-Approved Mortgage?

By Sheri Cyprus
Updated May 17, 2024
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Many real estate experts recommend a pre-approved mortgage for real estate buyers. Especially during periods of tough competition to buy homes, a pre-approved mortgage can help put buyers ahead of those that don't have pre-approved financing since sellers usually want to be certain about the buyer's payment details. It's important to note that being pre-approved is not the same as being pre-qualified.

Pre-qualification for a mortgage means that a loan officer has made a rough estimate based on information he or she received from the home buyer. Pre-approval is more reliable since the information has been both analyzed and verified. Plus, the employment history, credit history and available cash of the buyer are all checked out by the loan officer.

A pre-approved mortgage is not just advantageous from the seller's point of view, but also from the buyer's perspective. For one thing, the buyer has a specific money amount that he or she is approved for, which helps focus the search for homes. The temptation to view homes out of the price limit is often reduced when buyers know ahead of time how much money they will have financed. The buyer saves time and can avoid considering a home out of his or her price range.

A pre-approved mortgage application should be applied for before beginning the house hunt. Pre-approved mortgages should have a guaranteed interest rate so the buyer doesn't have to deal with interest rate increases. Since different real estate lenders have different terms in the pre-approved mortgages they offer, real estate buyers can shop around and choose the lender that best meets their needs.

Most lenders don't charge a fee for an application for a pre-approved mortgage. Lenders will analyze income in comparison to debt and also consider the amount the buyer has for a down payment on a home. A buyer's credit rating is important to real estate lenders. Employment details such as the number of years the buyer has worked at his or her current job are also important to lenders when they assess applications for a pre-approved mortgage.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
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