September 1, 2021

Why You Should Get Preapproved for a Mortgage Before Looking at Houses

House For Sale written on a sticky note and Red Handle Rubber Stamper Pre-Approved text isolated on the table.

If you’re planning to buy a home in the near future, you may be wondering how to get started.

Besides perusing properties and researching neighborhoods online, getting preapproval for a home loan is a crucial step that helps the homebuying process go more smoothly. You’ll want to get preapproved before contacting a real estate agent to schedule showings.

Preapproval is simply a statement from a lender that says how much they’re willing to let you borrow toward the purchase of your home. It tells you how much you can afford and lets real estate agents know you’re serious about making a purchase. 

Let’s take a closer look at what you need to know about the preapproval process and how it can help you find the home of your dreams that also fits your budget. 

What’s the difference between prequalification and preapproval? 

When you begin the homebuying process, you may hear the terms prequalification and preapproval used interchangeably, but they really mean two different things.

Prequalification is a great move if your goal is to determine whether you’re financially ready to purchase a home. It involves a more informal review of your income, debts, assets and credit picture. The lender will give you an estimate of whether you’re likely to qualify for a mortgage, and approximately how much you’d be able to borrow. Prequalification involves a so-called “soft” credit check, meaning it only includes limited information and won’t affect your credit score. It typically doesn’t require much documentation and is less useful for real estate agents and sellers. 

Preapproval is a more rigorous process that requires a “hard” credit check and more extensive documentation of your income, assets and debts. The lender will require solid proof that you’re able to afford a home in a particular price range. 

Why get preapproved? 

Preapproval has a number of benefits that makes the homebuying process much easier for you, your real estate agent and the seller.

Get a more realistic cost picture

The lender will tell you what you can afford within a specific price range, which lets you look at properties that are consistent with your budget. You’ll be in a position to make a more competitive offer once you find the right home. 

Your preapproval will estimate other costs, such as your likely down payment and interest rate. You’ll also get an estimate of your monthly mortgage payment for more realistic budgeting. 

Find out the types of loans you qualify for

Preapproval also tells you the types of home loans that are available to you, such as a conventional loan, jumbo loan or fixed-rate mortgage. Some buyers will qualify for government-insured programs such as FHA, USDA and VA loans. The type of loan you qualify for may influence where you’re able to purchase a home. For example, USDA loans are available for properties located in an “eligible rural area.” 

Let agents and sellers know you’re serious

Real estate agents will want to know you’re a qualified buyer before showing you a property. In fact, many will need to see your preapproval letter before scheduling that first showing. That helps them work more efficiently by showing you homes that will fit within your price range. 

You’ll also need your preapproval letter handy when you make an offer on a house. It reassures the seller that you can afford the property. It gives them proof that a lender has already vetted you and is willing to lend you the money. 

How preapproval works 

During preapproval, the lender will want evidence that you can afford to purchase a home. They will need to see documentation of your income, assets, debts and creditworthiness.

Compile financial documents 

There are a number of documents that will help the lender get an accurate sense of your financial situation: 

  • Pay stubs, W2s, 1099s and tax returns
  • Employment verification, with at least two years of continuous employment preferred
  • Recent bank and savings account statements
  • Investment and retirement account statements
  • Identifying information, such as your Social Security Number and current address

Calculate debt-to-income ratio

The lender will compute what percent of your monthly income goes toward debt payments. Besides mortgage payments, it also includes things like credit card statements, student loans and car payments. 

Many lenders use what is called a “28/36” qualifying ratio. This means your mortgage payment should take up no more than 28% of your gross monthly income, and total debts should take up no more than 36%.

Check your credit

It’s a good idea to check your own credit report before seeking preapproval. That gives you the chance to dispute any errors and resolve delinquent accounts before a lender sees it. A credit score of at least 620 is recommended to qualify for a home loan, with 740 or above even better for getting the best interest rates on your mortgage. 

When the lender checks your credit, they will look at your overall credit history, credit utilization and how much of your credit limit you’re using. 

What happens when you apply?

The preapproval process usually takes a few days. If you get preapproved, the lender will issue a preapproval letter that tells you the type of loan you qualify for and how much you’re qualified to borrow. The letter is valid for a limited period of time, such as 60 to 90 days. 

Preapproval by itself does not guarantee that your offer on a house will be accepted. To get final approval, the home must be appraised to make sure you don’t pay more than you’re approved to borrow. 

Your preapproval may also not stand if your financial situation changes afterward. During the time between getting preapproved and making an offer on a home, you’ll want to avoid applying for new credit, making large purchases and missing any loan payments. 

It’s also a good idea to seek preapproval from multiple lenders. The process should have a minimal effect on your credit score if you confine the process to a limited time frame such as 30 days. 


Preapproval gives you a clearer sense of how much you can afford to spend on your home. It saves time while house hunting and positions you to make a smarter offer. 

If you have questions about preapproval or other aspects of purchasing the right home, call Sturdy Real Estate at 417-881-3061 or reach out to us online.

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