Simply put, pre-approval is when your lender really looks into your financial history and lets you know how much they would be willing to lend you.



#1 – To get a sense of your true budget.

Trust us — you don’t want to start house-hunting without knowing your actual upper limit. But please proceed cautiously here. Just because your lender might be willing to lend you a certain amount of money doesn’t mean you can truly afford to borrow it. Remember, you ultimately need to set the amount you are comfortable spending on a home, not the bank. But getting pre-approved at least gives you a ballpark of what might be appropriate for you.

#2 – To show you are serious.

Once you feel ready to buy a home, getting approved sends an important signal to your partners (like a potential seller) that you are a responsible buyer who is doing his or her homework. If you ultimately make a bid on a home, the seller will respond more favorably to the fair offer that arrives with a pre-approval letter – which shows that you can actually put your money where your mouth is.

Make Your Pre-Approval Match Your Offer

Be sure to mention to your lender that you might come back in the future for a second pre-approval letter — one that lists the actual amount of the offer you intend to make on a house, and not your upper limit.

That’s because when you are bidding on a home, it’s better to just focus on your offer, not how much you theoretically could pay. It could hurt your negotiation position if a seller sees that you are pre-approved for $275,000, but you only want to offer $225,000. So while it’s nice to know your upper limit, once you’re ready to submit a purchase offer you may wish to have your pre-approval letter reflect the actual offer amount. Be warned – not all lenders are willing to do this, so it is smart to find this out upfront.