Getting Preapproved for a loan necessary?

9 Replies

Hey everyone, So I have been talking to a few real estate agents and the first question they always ask is if I have gotten preapproved for a loan. Is this a necessary step I need to take before purchasing a home? Here is the case: I am looking to purchase an investment property but am in no rush. If I bought one at the end of next year, I wouldn’t mind. So if I got preapproved for a loan right now and I don’t buy a property within 4 months, it will expire and I would have lowered my credit score for nothing? Just curious on your guys’ thought on my process and how you guys usually run it.. should I be more committed and purchase a home within the 4 months? I definitely have the down payment for my next property and I have a good amount of income from my job to be paying the mortgage, would you advise me to get preapproved anyways ? And the same question except on the opposite spectrum. If I do find a property and I haven’t gotten preapproved, that’s what I will have to worry about during escrow correct, getting an actual approved loan? Thanks in advanced Peter

If you don't get preapproved, an agent knows you aren't serious about buying a property. And no agent will likely be willing to show you properties now, when "you may buy one in a year". The ding, 4-5 points on your credit score, is only temporary. If you want to buy a property, absolutely get a preapproval, a Real one.....where you have to submit tax returns, w-2's, bank statements, etc.

You don't really know what ou can buy until you get one. Also, sellers usually won't even consider an offer without at least a preapproval in place.

@Peter Bui

Hi Peter,

It's not technically required, but it's something most agents are going to ask you for. The market is so competitive right now, that the last thing a seller or an agent wants is for a house to go under contract and then fall through because you can't get financing. Pre approval just helps reassure the seller and the agent that wont happen. 

Its just a coupe points on your credit score. Just decide if you want to buy a house and if you do then get a pre approval. Worst case you ask your lender to extend it. I don't think it dings your credit much.

I'm no expert though. Maybe someone else will chime in. I've gotten 8 pre approvals in my life and the effect on my credit was pretty minimal. 

@Peter Bui

The real estate market has gotten very competitive. Every little thing you can do to increase your chance of success, you will need to do. Every little edge that will give you one step ahead of the competition, you will need to do.

That being said, when it comes to pre-approvals, it is a pain in the butt to get each time to submit an offer. If you have a close relationship with a lender that you've done many loans/refi's before, then you might be able to generate your own pre-approvals and then let lender know that you've submitted offer and pre-approval with their name.


@Peter Bui there are three reasons for pre-approval:

1. You need to know how much a lender is willing to lend, so you are shopping the right kind of lenders. Of course keep in mind, pre approval doesn't mean you have to use that lender. You may choose to shop lenders once you get the deal. It just gives you a good starting point.

2. Good real estate agents want to see pre-approved, so they don't waste their time. Maybe you think approval is guaranteed, but so does every person. A good agent doesn't waste time on people that won't have the means to close a deal. They want to know you have talked to a bank first.

3. When you do find the perfect property, you want to move quickly. Most offers require a pre-approval letter either with the offer or right after offer acceptance. If you have met with the bank ahead of time, they will just send the letter right over.

Pre-approval costs you nothing. If your credit score is so fragile that a couple inquiries will hurt you that much, then you have bigger issues to worry about. I am not sure if pre-approvals really expire. I just had an offer accepted and it had been a year since I talked to my banker. He sent a letter right over. Keep in mind pre-approval doesn't guarantee a loan, so they will recheck everything once you find a deal. Of course they will already have a file on you, so the recheck process is pretty easy and just involves updating new information.

Getting preapproved for a mortgage is definitely a good idea! It's smart to know exactly where you stand and get a better understand the whole process from a lender you trust.

As someone else commented, it’s a pretty competitive market out there and no seller is going to accept an offer that doesn’t come alongside a preapproval. You never know when you’ll stumble upon the right property to purchase, so you’d be smart to get the ball rolling now.