What is Mortgage Pre-Approval 
and Why Is It Important?

What is a Mortgage Pre-Approval & Why Does It Matter?

One of the most important steps in the home-buying process if using financing is getting pre-approved for a mortgage. Mortgage pre-approval is part of the lender consultation process where you will work with your lender to determine the best loan options for your objectives and what price range is in line with your budget. 

Mortgage Pre-approval is less about getting a letter that says you can buy a house and more about exploring what mortgage options are available and determining your financial objectives. Even if you know you will qualify for a mortgage it is an essential starting point.

What is a Mortgage Pre-Approval?

In its simplest form, mortgage pre-approval is figuring out how much money you can borrow from a bank for your home purchase. 

The process of getting pre-approved for a mortgage involves a lender reviewing your income and asset information and your credit score, and then making a determination of whether or not your loan application is likely to be approved and in what amount.

When you complete the mortgage pre-approval process, you will receive a pre-approval letter. This letter, which is submitted with an offer to purchase a home, and indicates to home sellers that you are able to complete the purchase if they accept your offer.

Why is this important?

If you want to buy a home, how you will complete the purchase is important information to start with. Just like when you go shopping and know how much money is in your wallet, pre-approval lets you know how much you can spend and what amount is in line with your financial goals.

Pre-Approval FAQ

Can I wait until I find a house that I want to purchase before getting pre-approved?

No. When you find a house you are interested in, you will have a lot to think about and decisions to make, and you don’t want figuring out financing to be one of them.  Waiting until you find a home that you want to purchase doesn’t allow you the time needed to have a lender consultation and determine your financial objectives. Worst of all, you could find out after months of looking that you’re not looking in then correct price range or not ready to buy at all. Serious buyers are pre-approved before they begin looking at homes, and you could miss out on a home you love if you’re not ready to go when you see it. 

What if I can’t get pre-approved for the mortgage that I want?

That’s completely OK! It’s not unusual for buyers to start the process and determine that they need to work on their purchasing power before they move forward with their home search. Your lender can give you exactly the information you need to know to budget and save, as well as advice on improving your credit score if that’s a factor. The higher your credit score is, the lower your cost of getting a mortgage will be.

What information will I need?

Your lender will need to verify your income, assets and credit score, as well as any other liabilities that you have. This is a little different depending on the specifics of your situation but may include:

  • Income: tax returns, pay stubs

  • Assets: bank statements, or other financial statements 

  • Credit score: they will obtain a copy of your credit report

Will getting pre-approved negatively impact my credit score?

Mortgage pre-approval does require a credit inquiry for the lender to determine your credit score. Typically this will decrease your credit score by 5 points or less. Mortgage pre-approval is typically good for 90 days, and over that time, your score will rebound by any amount that it was reduced by the credit inquiry (provided there are no other derogatory factors). 

Something else to keep in mind is that you may have your credit score checked by as many lenders as you want within a 14 day time period and it will only count as one credit inquiry. With this in mind, we recommend that you determine which lenders you want to consider and work on pre-approval with all of them at the same time.

Not sure where to start with buying a home? 

No matter where you are in the process, we can help with that!

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