Why Do I Need to Get Pre-Approved Before Looking at Homes?

If you’re starting your home search in San Jose, you’ll quickly hear this advice: get pre-approved first. While it might seem like an extra step when you’re eager to start touring properties, mortgage pre-approval is arguably the most important thing you can do before beginning your home search.

What Is Pre-Approval?

Pre-approval is a thorough evaluation by a lender who examines your financial situation—including your income, assets, debts, and credit history—and provides a written commitment stating how much they’re willing to lend you. This is different from pre-qualification, which is just an informal estimate based on self-reported information.

During pre-approval, you’ll submit:

• Recent pay stubs and W-2s
• Tax returns (typically two years)
• Bank statements
• Credit report authorization
• Documentation of other assets or income sources
• Employment verification

The lender then issues a pre-approval letter specifying your maximum loan amount and typically valid for 60-90 days.

Why Pre-Approval Matters in San Jose’s Market

1. Sellers Won’t Take You Seriously Without It

In San Jose, where homes receive multiple offers and sell above asking price, sellers have the luxury of being selective. With 69.6% of homes selling above list price and the average home selling in just 18 days, listing agents routinely dismiss offers that don’t include pre-approval letters.

Why would a seller accept your offer when three other buyers have pre-approvals proving they can close? They won’t. In competitive situations, lacking pre-approval essentially disqualifies your offer before it’s even considered.

2. You’ll Know Your Actual Budget

You might think you can afford a $1.2 million home, but after a lender reviews your finances, you might learn you only qualify for $950,000—or perhaps $1.4 million. Without pre-approval, you’re wasting time (yours and your agent’s) looking at homes you can’t afford or missing out on homes you could buy but didn’t consider.

This is especially important in San Jose where the gap between wishful thinking and lending reality can be enormous. A lender will give you a realistic maximum based on your debt-to-income ratio, not your aspirations.

3. It Reveals Deal-Breakers Early

Pre-approval often uncovers issues that need addressing before you can buy:

• Credit score problems requiring cleanup
• Debt levels that need to be reduced
• Income documentation challenges for self-employed buyers
• Down payment shortfalls

Discovering these issues before you find your dream home prevents the heartbreak of having an offer rejected or a deal fall apart during escrow. You can address problems proactively rather than scrambling under deadline pressure.

4. It Speeds Up the Closing Process

Since the lender has already verified your finances during pre-approval, the underwriting process moves faster once you’re under contract. In San Jose’s market, where sellers prefer quick closes, being able to commit to a 30-day (or even 21-day) escrow period can make your offer more attractive.

Some buyers even waive financing contingencies because they’re confident in their pre-approval, though this carries risk and should only be done with careful consideration.

5. It Gives You Negotiating Power

When you make an offer with a pre-approval letter from a reputable lender, you’re demonstrating to the seller that you’re a qualified, serious buyer. This credibility can help in negotiations, especially if the seller is comparing similar offers.

Additionally, knowing your exact budget gives you confidence during negotiations. You won’t accidentally offer more than you can borrow or leave money on the table by offering too little when you could afford more.

6. Agents Will Take You More Seriously

Real estate agents in San Jose are busy. A good agent might get several inquiries daily from prospective buyers. When you approach an agent with a pre-approval letter in hand, you immediately signal that you’re a serious buyer who respects their time.

This means better service, more attention, and potentially access to pocket listings or properties before they hit the market. Agents invest significant time in buyers, and they prefer to work with those who are ready to move forward.

7. It Locks In Your Interest Rate (Sometimes)

Some lenders offer rate locks during pre-approval, protecting you if rates rise before you find a home. Given that mortgage rates fluctuate, this protection can be valuable, though rate locks typically last only 30-60 days.

Even without a rate lock, you’ll know what current rates look like and can plan your budget accordingly.

Pre-Approval vs. Pre-Qualification: Know the Difference

Pre-Qualification: An informal estimate where you tell a lender about your finances (income, debts, assets) and they give you a rough idea of what you might borrow. It requires no documentation or verification and holds little weight.

Pre-Approval: A formal application where the lender verifies your financial information, pulls your credit, and issues a conditional commitment to lend you a specific amount. This is what sellers and agents expect to see.

In San Jose’s market, pre-qualification is essentially worthless. Always get full pre-approval.

How to Get Pre-Approved

Step 1: Check Your Credit Before applying, review your credit reports from all three bureaus. Dispute any errors and address any issues.

Step 2: Gather Documentation Collect pay stubs, tax returns, bank statements, and information about debts and assets.

Step 3: Shop Around Contact multiple lenders—banks, credit unions, and mortgage brokers. Compare rates, fees, and programs. Even a 0.25% rate difference can save thousands over 30 years.

Step 4: Submit Applications Apply to 2-3 lenders within a 14-day window. Credit bureaus count multiple mortgage inquiries in a short period as a single inquiry, minimizing impact on your score.

Step 5: Review Your Letters Once approved, you’ll receive pre-approval letters. Keep digital and printed copies readily available.

What Your Pre-Approval Letter Should Include

A strong pre-approval letter specifies:

• Your name
• The maximum loan amount
• The type of loan (conventional, FHA, VA, etc.)
• The lender’s name and contact information
• An expiration date
• A statement that the approval is subject to property appraisal and final underwriting

Some agents recommend getting letters that don’t specify the maximum amount, so you can request letters for specific properties without revealing your full buying power to sellers.

Keeping Your Pre-Approval Valid

Pre-approval isn’t a guaranteed ticket to homeownership—you must maintain your financial situation:

Don’t change jobs unless unavoidable (and inform your lender immediately if you do)

Don’t make large purchases or open new credit accounts

Don’t move money between accounts without documenting it

Keep making payments on existing debts on time

Don’t let your credit be pulled by other lenders or for other purchases

Any significant financial changes can void your pre-approval and derail your home purchase.

The Bottom Line

In San Jose’s hyper-competitive market, shopping for homes without pre-approval is like showing up to a car auction without bringing money—you’re not a real participant. Pre-approval transforms you from a browser into a buyer, opens doors with agents and sellers, and gives you the confidence to act quickly when you find the right home.

The few hours spent getting pre-approved will save you countless hours of wasted effort and prevent the disappointment of losing your dream home because you couldn’t prove you were financially ready. In a market where homes sell in just 18 days and often receive multiple offers, being pre-approved isn’t optional—it’s essential.

Start your home search by starting with pre-approval. Your future self will thank you.