Why Getting Pre-Approved Should Be Your First Step in the Homebuying Journey

Since the supply of homes for sale is increasing and mortgage rates are decreasing, you may feel like it’s finally your time to enter the market. To ensure you're fully prepared, getting pre-approved for a mortgage is essential.

During this process, a lender will assess your financial situation—looking at factors like your W-2, tax returns, credit score, and bank statements—to determine how much they are willing to lend you. Once complete, you’ll receive a pre-approval letter indicating the loan amount you qualify for. Here are two key reasons why pre-approval is crucial in today’s housing market.

Pre-Approval Helps You Understand Your Financial Limits

While home affordability is beginning to show signs of improvement, the market remains tight. Speaking with a lender about your loan options and how today’s fluctuating mortgage rates could impact your monthly payment is a smart step. The pre-approval process provides the perfect opportunity to do this. In addition to determining the maximum amount you can borrow, pre-approval gives you a clearer picture of your financial situation. As Investopedia explains:

“Getting pre-approved allows you to discuss loan options and budgeting with the lender; this step clarifies your house-hunting budget and the monthly mortgage payment you can afford.”

This information can help you focus your home search on properties within a realistic price range. With mortgage rates recently trending downward, you might find you can afford a bit more than you initially thought. However, it’s important to avoid stretching your budget too thin. As CNET wisely notes:

“In many cases, a lender may preapprove you for more than you need to spend on a home. And while it’s tempting to look at homes beyond your budget, it won’t benefit you in the long run. Before touring properties, determine what you can realistically afford and stick to your budget.”

Pre-Approval Strengthens Your Offer

Once you find a home that fits your budget, pre-approval offers another significant advantage: it strengthens your offer. Having already passed a financial and credit review, a pre-approval shows sellers that you’re a serious buyer. This can make your offer stand out in a competitive market, as it demonstrates that your financing is likely to go through without complications. As Greg McBride, Chief Financial Analyst at Bankrate, says:

“Pre-approval carries more weight because lenders have thoroughly reviewed your credit, pay stubs, tax returns, and bank statements. It shows that you’ve cleared the necessary hurdles to be approved for a mortgage up to a certain amount.”

As mortgage rates continue to dip, more buyers will be eager to re-enter the market, potentially leading to increased competition—especially in sought-after areas. By getting pre-approved, you give yourself a competitive edge, ensuring you’re in the best position to secure the home you love.

Bottom Line

If you're planning to buy a home, securing pre-approval should be one of your first steps. It not only helps you understand exactly how much you can borrow but also makes your offer more appealing to sellers. Getting pre-approved early in the process ensures you're well-prepared and ready to act quickly when you find the right home. With potential competition heating up, being pre-approved could make all the difference in landing your dream home.