Can I make an offer on a house before I have my mortgage lined up?

Reader question: "I am working on getting my loan paperwork together, so I can finish up with my mortgage financing. But I have seen some homes currently listed for sale in my area that really appeal to me. I'd hate to miss out on them. Can I make an offer on a house before I have my mortgage approved, just to get it under contract so I don't lose it? Can I put 'mortgage pending' or something like that on the offer, to let the sellers know I'm working on it?"

Normally how it works is you get pre-approved for a loan and then start house hunting, in that order. If you make an offer with a pre-approval letter attached, the sellers will certainly consider it. This is the typical sequence of events.

If you haven't even spoken to a lender yet, that's a different situation entirely. In this situation, the sellers will be less inclined to consider your offer, regardless of the amount you are offering to pay. Above all else, they want to know there is high likelihood that you will receive financing. They want to know you've been "checked out" financially.

Where are you right now, in the mortgage process? Have you at least been pre-approved by a lender? If so, you can certainly make an offer on a house.

The pre-approval tells the seller that you've been reviewed by a mortgage company, and that everything seems to check out (initially, at least). This gives the seller more reason to accept your offer, compared to someone who hasn't been reviewed and evaluated by a lender.

This also depends on the type of real estate market you're in. If you are in a slow market, where sellers typically have to wait a long time for a strong offer, they might actually consider your offer at an early stage, even before pre-approval. They probably won't take the house off the market, since you don't have your financing lined up yet. But they'll probably keep the lines of communication open, at least.

On the other hand, if you're in a fast-moving market where homes sell quickly, there's probably no point in making an offer on a house before you have a mortgage pre-approval. In this scenario, the sellers will have other offers behind yours, and stronger ones at that.

Can You Make an Offer Before Mortgage Pre-Approval?

So the question is: Can you make an offer on a house before you've even been pre-approved for a mortgage? Yes. There is nothing stopping you doing this, legally speaking. Anyone can make an offer to buy a house that is listed for sale.

With that being said, sellers typically don't put their homes under contract unless they feel good about the buyer who is making the offer. And that usually means that the buyers have their financing lined up already, or they've at least been pre-approved by a mortgage lender.

This is why we generally encourage buyers to get a pre-approval letter before they begin house hunting. Otherwise, you're putting the cart ahead of the horse and possibly wasting everyone's time -- including yours.

Put Yourself in the Seller's Shoes

This makes plenty of sense when you think about it from the seller's perspective. In a typical real estate market (one with a fairly balanced level of supply and demand), you never know when the next offer is going to come along. So, as a seller, you have to make sure the offer you have in hand is a strong one, before you stop showing the property to other potential buyers.

If I'm selling my house, and I get an offer from someone who hasn't even spoken to a mortgage lender yet, I would not be inclined to put the home under contract or stop showing it. (Unless, of course, the buyer is paying cash, in which case the mortgage financing is irrelevant.) The point is that prudent sellers will evaluate all offers to ensure there is a high likelihood for successful financing. Usually this means making sure the buyer has been pre-approved by a lender.

If the seller is using a listing agent, as most of them do, one of the agent's first questions will be: "Has this buyer been pre-approved, or do they have cash financing lined up?" If the answer to both of these questions is no, the agent will probably advise his or her clients to continue accepting other offers, until something more solid comes along.

With this in mind, let's revisit the question at hand: Can you make an offer to buy a house before your mortgage is approved? Sure. In fact, you need to have a purchase agreement signed by both the buyer and seller in order to obtain the final approval. The lender cannot approve you for a loan until they know (A) which house you are trying to buy, and (B) how much you have agreed to pay for it.

But if you want the seller to take you seriously, to the point that they put the home under contract and cease all showings, you should have one of two things: (1) a pre-approval letter from a lender, or (2) a bank document that shows you have your finances ready to make the purchase. If you have neither of those things, you're making a weak offer.

Where to Learn More

Are you currently working with a real estate agent? If not, you should consider doing so. If you do have an agent on your side, or you will in the near future, ask them about this strategy. Ask if it makes sense to make an offer before you have a mortgage pre-approval letter in hand, based on your local market conditions. As mentioned earlier, a lot of this has to do with the speed and competitiveness of your local real estate market.

You can also learn more about mortgage pre-approval, house hunting, and similar topics right here on our website. We have one of the largest collections of home buying tutorials available anywhere, and it's growing every day. You might want to start with this related article about offering more than the pre-approval amount.