At what point during my home search should I apply for a mortgage approval?

The answer is quite simple – AS SOON AS POSSIBLE!

There are number of good reasons to apply for what is known as a pre-approval at the very beginning of your home shopping process.

First of all, if you don’t know how much of a mortgage you will be approved for, you really have no valid way of deciding what price range to look in. In other words, you may really like a certain community where the homes run, let’s say, between $350,000 and $400,000. If you can contribute $50,000 as a down payment and you can obtain a $250,000 mortgage you are probably not going to be able to purchase in that community. If you’re really determined to move there, then the sooner you know about the difference between what you have and what you need, the better.

Secondly, if you do find a house that you want to make an offer on, your offer will be a much “stronger” offer if you have a pre-approval letter than if you don’t. In the event that you are competing with another buyer for a specific property, your offer, with a pre-approval will likely be taken more seriously. It could even convince the seller to take less money.

Think about it. If you were selling your home, worth approximately $300,000 and you had two offers. One is for $294,000 from someone who has it in writing that they will be able to get a mortgage and close on your house. The other offer is for $297,000 but the buyer has nothing more to give you than his “word” that he has enough money and borrowing power. Which one would you take?

Let me also explain the difference between a pre-qualification and a pre-approval. A pre-qualification from a lender, could mean nothing more than a statement to the effect that “based on the information provided by the consumer” he would qualify for a mortgage of XX”. This is based, strictly on self-reported information by the consumer and carries very little or no weight when it comes time to enter a legitimate transaction.

A pre-approval is a formal letter from a lender that states that the lender has taken a credit application, run a credit check and that the buyer is approved for a mortgage of XX based on specific conditions. The conditions might be a loan-to-value ratio or a specific sized down payment, etc.

Most reputable lenders will not charge you anything for a pre-approval. There’s really no “downside” and plenty of “upside” to getting approved as early as possible in the game. When you do find a home you like, you will be glad you did.