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Can You Look At A House Without Preapproval? What Every Home Buyer Needs To Know

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Published on September 7, 2022
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You’re ready to make the move to owning a home, and you’re eager to tour the single-family homes, condos and townhomes for sale in your community. But if you need a mortgage loan to finance the purchase of your new home, you should get preapproved first. This way, you’ll know exactly how much home you can afford. You’ll also gain an advantage if you get into a bidding war with other buyers.

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What Is Preapproval?

In a mortgage preapproval, a lender looks at your credit and finances to determine how big of a mortgage loan it is willing to give you.

Lenders will typically require you to provide them copies of your two most recent paystubs, last 2 months of bank account statements and last 2 years of tax returns. Lenders might also want copies of your last 2 years of W-2 forms. With this information, they can verify your income.

Once lenders have this information, and once they pull your credit, they’ll send you a preapproval letter stating how much of a loan you can qualify for based on your current financial status. Your lender’s letter might state, for instance, that they’re willing to give you a mortgage of $250,000 if your financials don’t change.

Mortgage lenders don’t charge for preapprovals, and you aren’t required to take out a mortgage with a lender just because that lender preapproved you. After you find a home and are ready to take out a mortgage, you might have to provide new paperwork proving your income, even if you decide to work with the lender that preapproved you. This lender will want to make sure that your financial information did not charge from the time it preapproved you.

Can You Look At A House Without Preapproval?

It is possible to look at homes for sale without first getting preapproved for a mortgage loan. But it’s almost always a better move to get that preapproval first. This way, you know how much home you can afford to buy. You also become a more attractive buyer to sellers, something that could be important if you are buying in a busy real estate market.

Many real estate agents won’t take buyers on tours of homes for sale unless they first get a preapproval letter from a lender. That’s because agents prefer working with buyers whom they know have a good chance of qualifying for a mortgage loan.

Why Getting Preapproved Is A Good Idea

Why is getting preapproved the better move? Here are some key reasons:

Inspires Confidence With Home Sellers

Home sellers prefer working with buyers who are preapproved for a mortgage. Sales with buyers who have already been vetted by mortgage loan officers are less likely to fall apart, saving sellers both time and stress. If you get in a bidding war for a home, sellers are more likely to choose your offer – if it’s similar to your competitor’s – if you’re preapproved and the other buyers are not.

Gives You A Firm Idea Of What You Can Afford

Getting preapproved also gives buyers a firm idea of how much they can spend on a house because they know, before even looking at homes, how large of a mortgage they can get. This saves buyers time: They won’t waste time looking at homes they can’t afford.

Speeds Up The Home Closing Process

Getting preapproved also makes closing on a home faster and easier. Lenders already know the basic information about buyers. Buyers, then, might not have to submit as much paperwork to close their mortgage. Be aware, though, that you might have to submit updated paycheck stubs and bank statements before closing on your loan, even if you are preapproved.

What Do You Need To Get Preapproved For A House?

You’ll have to provide proof of your income to earn preapproval for a mortgage. Doing this requires copies of the following documents:

  • Identification: You’ll need to send a copy of your driver’s license, state ID or other form of identification to your lender. Everyone whose name will be on the mortgage will have to provide this.
  • Bank statements: Most lenders require copies of your last 2 months of bank account statements. This helps lenders verify that you have enough money to afford your monthly mortgage payment, down payment and closing costs of your loan.
  • Proof of employment: You’ll need to send your lender a letter, on company letterhead, stating your position, years of employment and yearly compensation.
  • Down payment gift letters: If anyone has given you a down payment gift, that person will have to compose a letter stating that the money is a gift that you don’t have to repay. If the money isn’t a gift, lenders will count it as debt because you do have to repay it.
  • W-2 forms: Most lenders require that you provide copies of your W-2 forms from the last 2 years. They use this to verify your income.
  • Tax returns: Lenders also typically request your last two years of federal income tax returns. They use this information to determine that your income has been stable for the last two years.
  • Credit check: Lenders will also check your credit reports and FICO® credit scores to make sure that you’ve paid your bills on time. They’ll also check to make sure you haven’t run up too much credit card debt.

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Should You Get Preapproved For A Mortgage Before Looking At Houses?

In most cases, you should get preapproved for a mortgage loan before you buy a home. This includes:

  • You want to make a more competitive offer: If you get into a bidding war on a home – something that could happen in a real estate market in which there aren’t enough homes for sale to meet the demand for them – you should get preapproved. Sellers prefer working with buyers who already have financing locked up. This could help you win your bidding war.
  • You want to lock in a specific interest rate: Many lenders will offer to lock in a set interest rate, usually for a fee, once they preapprove you for mortgage financing. This can pay off if interest rates rise after you lock yours in. You’ll stay pay the lower rate. Be aware, though, that interest rate locks can expire if you don’t find and make an offer on a home before your lender’s deadline.
  • You are having trouble finding a real estate agent who will work with you: Many real estate agents won’t work with buyers unless they get preapproved for a mortgage first. If you want your pick of the best agents, it makes sense to get preapproved first.
  • You want to know exactly how much home you can afford: Once you are preapproved for a mortgage, you’ll know how big of a mortgage you can take out. You’ll also know how expensive of a home you can afford. You won’t waste your time looking at homes that are too costly for your budget.

When Shouldn’t You Get Preapproved For A Mortgage? 

There are rare cases in which getting preapproved for a mortgage doesn’t make sense:

  • You aren’t ready yet to make an offer on a home: Most preapprovals expire 60 – 80 days after buyers receive their preapproval letter. If you’re not ready to make an offer on a home during this period, it doesn’t make sense to get preapproved.
  • You are worried that your debt-to-income ratio (DTI) is too high: Your DTI measures how much of your gross monthly income your monthly debts consume. Most lenders want your monthly debts, including your new estimated mortgage payment to equal no more than 43% of your gross monthly income (your income before taxes are taken out). If your DTI is too high,  work on lowering it before applying for preapproval. Some lenders won’t approve you for a loan if your debt-to-income ratio is too high. Others will approve you for a smaller mortgage, meaning you might not be able to afford the home of your dreams.
  • You are worried that your credit score is too low: You want your three-digit FICO® credit score to be as high as possible before you apply for a mortgage. By doing so, you’ll boost your odds of qualifying for the best mortgage at the lowest interest rate. If your score is low – lenders consider scores of 740 or higher to be very good – it makes sense to wait to seek preapproval until you can improve it.

The Bottom Line

Getting preapproved for a mortgage loan removes much of the stress of buying a home and applying for a mortgage loan. It also makes you a more attractive buyer, something that could pay off should you get into a bidding war over the home of your dreams. You can start the approval process today.

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Dan Rafter

Dan Rafter has been writing about personal finance for more than 15 years. He's written for publications ranging from the Chicago Tribune and Washington Post to Wise Bread, RocketMortgage.com and RocketHQ.com.