Do you need preapproval to make an offer?
Quick insights
- You may be able to make an offer on a home without mortgage preapproval, but it could strengthen your offer in a competitive housing market.
- A preapproval letter can show sellers you’re financially prepared and serious about buying a home.
- Mortgage preapproval could also help streamline the rest of a home purchase after your offer is accepted.
You just toured what could be your dream home—the floors, natural light, kitchen and cozy spaces you’ve always wanted. You can already imagine where the couch will go and how you will decorate the entry. But as you start thinking about making an offer, a big question comes up: Do I need to be preapproved first?
It’s a common thought for many first-time homebuyers, especially when emotions and excitement are running high. Understanding how mortgage preapproval fits into the homebuying process may help you feel more prepared and confident when it’s time to take that next step.
What is a mortgage preapproval letter?
A mortgage preapproval letter is a document from a loan provider that indicates how much you may be eligible to borrow based on a preliminary review of your finances. It usually includes details like your estimated loan amount and interest rate for a certain loan type.
Mortgage prequalification vs. Mortgage preapproval
Mortgage prequalification provides an estimate of what you might be able to borrow, usually based on self-reported financial information. Mortgage preapproval is a more detailed analysis of financial profile and involves verifying documentation like your income, assets and credit. While it’s not a final loan commitment, your preapproval can give sellers more confidence in your offer, reflecting a level of financial readiness.
Can you make an offer without preapproval?
You are not required to have preapproval to submit an offer on a property, strictly speaking. However, sellers and listing agents may prefer an offer with preapproval over one without it. In some cases, offers without preapproval may be considered less competitive, especially in a hot real estate market with multiple bids.
The role of preapproval in making an offer
Mortgage preapproval can shape how your offer is received by sellers. While this nuance doesn’t guarantee final loan approval, it may offer advantages during the offer and negotiation process.
- Strengthen your offer: A mortgage preapproval letter can make your offer more attractive to sellers because it shows that a loan provider has reviewed your finances. A letter may give sellers more confidence that the transaction could move forward without major financing hurdles.
- Negotiation advantages: Being preapproved for a home loan may offer you more leverage during the negotiation process. Sellers might be more willing and open to accept a slightly lower offer from a preapproved homebuyer who appears more prepared and capable of closing quickly. This could give the seller more peace of mind because it reduces the risk of delays or deal fallout.
Example: A couple shopping for their first home found the perfect condo in a fast-paced housing market. Because the couple had a mortgage preapproval letter, their offer stood out among multiple bids, even though it wasn’t the highest. The seller chose the couple because of the added confidence in their ability to secure mortgage financing and close on time.
How to get mortgage preapproval
Getting preapproved is an essential step in the homebuying journey. While it may sound complex, preapproval can be straightforward with the right resources and assistance. A mortgage preapproval letter can help strengthen your offer when you find the right home.
Here’s how mortgage preapproval usually works for first-time homebuyers:
- Review your financials and gather all pertinent documentation: Loan providers typically ask for documents that show your monthly income, savings, debt obligations and other key factors.
- Choose a loan provider and complete a preapproval application: You can apply for preapproval through a bank, credit union, mortgage broker or online lender. It may be a good idea to compare mortgage lenders. Preapproval typically requires a hard credit check.
- Undergo a credit and financial review: Once your home loan application is submitted, the mortgage lender will generally review your credit profile, debt-to-income ratio (how much you owe vs. how much you earn), employment and finances.
If your information meets the loan provider’s criteria, you may receive a preapproval letter outlining a potential loan amount, loan type and estimated mortgage interest rate (subject to change).
Frequently asked questions
Here are some of common questions from homebuyers about preapproval:
Do I need a preapproval letter to make a cash offer?
No, but you will likely need to show proof of funds to confirm you can afford the purchase.
Can I look at houses without preapproval?
Yes, in most cases, you can look at houses without preapproval; however, real estate agents and sellers may take you more seriously if you’re preapproved.
What do you need before making an offer?
Before you submit an offer on a home, it’s key to have the following:
- A mortgage preapproval letter (or proof of funds if paying for the home in cash)
- A clear understanding of your budget and loan options
- Funds set aside for a down payment and closing costs
- Guidance from your real estate agent on the local market and offer strategy
Why should I get preapproved early?
It may help avoid delays and strengthen your chances of purchasing your dream home.
In summary
While mortgage preapproval may not be required to make an offer, it can be an incredibly valuable tool that shows sellers you’re financially prepared and ready to close the deal. It could also give you more negotiating power and help speed up the closing process. Taking this step early on during the homebuying process can give you more confidence and a competitive advantage as you search for your new dream home.
