Can You Make an Offer Without a Pre-Approval?

As you may know, submitting a mortgage pre-approval letter along with your bid on a home may give you the upper hand in a competitive market, yet rest assured you don't have to have a pre-approval letter per se to make a purchase offer.

Mortgage pre-approval calls for going through all the steps of applying for a mortgage loan. The goal is that a lender supplies you with a letter indicating how much money they're willing to lend you and the terms of the loan. A pre-approval letter lets the seller know that you’re serious about going through with a purchase and that you can back up your talk with financing. It’s a sign that you’re a serious potential buyer — a feather in your cap in a competitive marketplace.

Pre-approval vs. Prequalification?

These terms can be used interchangeably, but they’re not the same. Both can be helpful when you begin your search, but pre-approval is a much more involved process than prequalification. Prequalifying for a mortgage is fairly simple and painless and can be achieved by answering a few questions for a mortgage issuer. For instance, you'll be asked to state your income and how much cash you have available for a down payment. You may have to disclose monthly expenses. Expect to provide your Social Security number so the lender can check your credit score.

Based on this information the lender will let you know whether you’re a good candidate to submit a full mortgage application and, if so, roughly how they might be willing to lend you.

Prequalifying, however, is different but a great way to scope out several mortgage lenders quickly so you can narrow down options. It’s important to keep in mind that the loan amount figures generated in the prequalification process are only estimates. These are insightful for comparison purposes, but not set in stone by any means.

Lenders will need to further scrutinize your financial situation before extending a firm offer for a loan. It's possible that even after a prequalifying letter, they might extend you a loan less than your prequalification amount or, in some rare cases, turn down your application if your financials change for the worse.

How to Get a Mortgage Pre-approval Letter

When you apply for mortgage pre-approval you can expect to be asked to submit documentation that confirms:

Proof of identity: A copy of a government-issued photo ID, such as a driver's license or passport will suffice.

Your income: Recent pay stubs or tax returns qualify.

Your monthly expenses: Mortgage lenders are concerned with the portion of your income that goes toward debt and housing each month, as this can be a measure of your ability to afford a mortgage.

Your Social Security number: This is needed to confirm your identity and run a credit check.

Your cash savings and other investments: Such assets can indicate that you can make the down payment you've offered. Availability of other assets that could be leveraged to cover mortgage payments could also support an application.

If you meet their qualifications, lenders will issue you a pre-approval letter indicating the amount they're willing to lend you for a home purchase. This amount isn't guaranteed — mortgage approval always applies to a specific property and your financial situation at the time. Still, it’s the strongest show of good faith financing any prospective buyer can give to a seller.

Offering a seller a pre-approval letter along with a purchase offer indicates that your lender has agreed to back your purchase. In a situation where another buyer lacks this advantage, a pre-approval letter can sometimes give you, the buyer, some bargaining power.

Does Mortgage Pre-approval Affect Your Credit?

The pre-approval process usually results in what’s considered a credit check — a hard inquiry entry on your credit report. These inquiries tend to cause small, temporary reductions in your credit scores. Scores typically go back to in a few months’ time if they're affected at all, if you keep up with your bill payments.

How to Get Your Credit Ready for a Mortgage

Experts say it’s best to get your financial affairs in order six months to a year in advance so lenders will view it in the best possible light. Improving your finances could increase your credit scores, and that could mean qualifying for lower mortgage interest rates and thousands of dollars saved in interest over the life of the loan.

Can I Look at a House without a Pre-approval Letter?

While having a pre-approval letter isn’t mandatory to look at a house, a real estate agent would like to see that due diligence. That’s because it shows that you’re able to purchase the home if you want to proceed. Real estate agents prefer you have it, so they know you’re not just window shopping and you aren’t wasting their time. It’s never a bad idea to have a pre-approval letter.

Can I Make a Purchase Offer without a Pre-Approval?

Speaking of money, when you've finally found the house that meets your needs and budget, we wanted to reiterate that it's not mandatory to submit a pre-approval letter with your offer. At the same time, getting pre-approved can allow you to shop with greater confidence and helps sellers take you more seriously.

Keep in mind that your chances of getting an accepted offer without a pre-approval letter will be largely dictated by the market. If it’s a buyer’s market, where buyers have more options, sellers may consider any offer they can get. But if it’s a seller’s market, where sellers are receiving multiple offers, a seller may dismiss the offers without pre-approval letters.

Ready to take the next step? Use our calculators, guides, and other resources to boost your homebuying know-how. Start off strong to find that dream home and get preapproved online in just 10 minutes. Contact a Ruoff Home Loan Advisor at one of our 70 locations across the country. We'll guide you through the process of buying your dream home.