Here’s What Happens When You Don’t Get Pre-Approved for a Mortgage

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Getting pre-approved for a mortgage is important on multiple fronts. Read on to see why. 

Buying a home can be a lengthy process. Not only do you have to look at different properties, but you also have to crunch the numbers to figure out what you can afford. And then, once you’re ready to move forward with a home purchase, you have to apply for a mortgage loan (unless you happen to have the cash to buy a home outright) and hope you get approved

But there’s another step you may want to take on the road to buying a home, and it’s getting pre-approved for a mortgage. Although this isn’t the same thing as getting an actual mortgage approval, it’s an important step worth taking for multiple reasons.

When you want to embark on a more efficient home search

A mortgage pre-approval letter isn’t the same thing as an actual mortgage approval. It means that a lender has done a preliminary review of your finances and has determined that you’re likely eligible to borrow a specific amount, provided nothing changes for the worse (meaning, your credit score doesn’t nosedive and your income doesn’t drop).

Having a mortgage pre-approval letter could help guide your home search. Let’s say you have $40,000 to put down on a home and are pre-approved to borrow $160,000. That means you can potentially buy a $200,000 home. If that’s the case, then there’s no point in spending your time looking at homes in the $240,000 to $250,000 range, since homes at that price point are out of your reach.

When you want an edge over the competition

In a tight housing market, you may be more likely to end up in a situation where you’re duking it out with competing buyers over the same property. If that’s the case, a mortgage pre-approval letter could work to your benefit.

Such is the state of the real estate market today. As of the end of April, there was only a 2.9-month supply of available homes on the market nationally, according to the National Association of Realtors. That’s well below the four- to six-month supply that’s generally needed to fully meet buyer demand and even out the housing market so neither buyers or sellers have an upper hand.

Meanwhile, let’s say you and three other buyers are all vying for the same home because it’s in good condition and is competitively priced. If you’re the only buyer with a pre-approval letter in hand, the seller may be more inclined to accept your offer if it’s on par with the others. That’s because the seller might have confidence in the fact that your mortgage financing is likely to come through without a hitch.

A step worth taking

In some cases, getting pre-approved for a mortgage may be a simple matter of calling some lenders and providing some financial information, like pay stubs and recent tax returns. Is it an extra step in an already time-consuming process? Yes. But it’s one worth taking because it could help ensure that you’re spending your time looking at suitable properties, and that you’re able to beat out other buyers when many of you are competing to purchase the same home.

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