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You are here: Home / Buyers / Why Interest Rate Quoted During Pre-Approval Doesn’t Matter

Why Interest Rate Quoted During Pre-Approval Doesn’t Matter

May 8, 2023 By Rebecca Jacks

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When it comes to buying your first home in Austin, getting pre-approved for a mortgage is an important first step. However, many first-time buyers get caught up in the interest rate they’re quoted during this process, mistakenly believing it locks in their future rate. The truth is, the rate you’re quoted during pre-approval is more of an estimate than a guarantee—and putting too much weight on it can lead to costly mistakes.

Here’s what you need to know about interest rates, how to shop smart for lenders, and steps to protect yourself during the pre-approval process.

interest rate quoted during pre-approval

The Reality Behind Pre-Approval Interest Rates

Lenders quote buyers an interest rate during pre-approval based on the information you provide (your income, credit score, etc.) and the current market conditions. However, you can’t “lock in” this rate until you have a signed purchase agreement on a home.

Because rates can fluctuate daily (and even several times a day), reputable lenders may quote a higher-than-market rate to give you a worst-case scenario of what to expect. This approach ensures transparency and helps you anticipate realistic costs.

Unfortunately, some lenders use this stage to their advantage, quoting buyers artificially low rates to win their business. These “too good to be true” offers are designed to entice you, but when you’re under contract and ready to lock your rate, they may hike it up to the market rate (or higher). By that point, you’re under time pressure and might feel stuck with no other options.

Should You Go With the Lowest Rate Quoted?

It might be tempting to choose the lender offering the lowest rate during pre-approval, but this decision comes with risks. Here’s how to protect yourself from potential pitfalls:

  • Work with more than one lender during the pre-approval process. If you’re seriously considering the lender quoting the lowest rate, continue working with a second lender who quoted you a higher (realistic) rate. This backup option ensures you’re not left scrambling if the “lowest rate” lender adjusts their rate later.
  • Focus on the rate at the time of rate lock. Remember, the only rate that truly matters is the one offered when you’re under contract and can lock in your rate. If the lender quoting a lower pre-approval rate maintains it at the time of rate lock, that’s fantastic. However, if they don’t, your backup lender might still offer a better option.
  • Evaluate the lender beyond the rate. A good mortgage lender will do more than provide a competitive rate. They’ll explain the process, walk you through loan options, and ensure the experience is seamless. A lender who only focuses on quoting rock-bottom rates may not offer the level of service you need.

Common Misconception About Working With Multiple Lenders

Some first-time homebuyers avoid shopping with multiple lenders because they fear a negative impact on their credit score. Here’s the good news: when you apply for multiple mortgages within a short window (around 14-45 days, depending on the credit bureau), it’s generally treated as a single inquiry. This means you can compare lenders without worrying about your credit score taking a big hit.

Exploring a few options allows you to make an informed decision, ensuring you’re working with the lender who offers the best combination of rates, transparency, and service.

home in Trace San Marcos TX

How to Choose the Right Mortgage Lender

To find the best lender for your needs, a little homework goes a long way. Here’s a step-by-step approach:

  • Ask Questions. Sit down with potential lenders and discuss your goals, budget, and the type of home you’re looking to buy. Ask them to explain their loan programs, how they determine interest rates, and what options they have for locking in your rate.
  • Understand Commitments. Find out if there are any hidden fees or strict guidelines you should know about. Transparency is key.
  • Compare Offers. Review the loan estimates from multiple lenders. Don’t just look at the number next to “interest rate”—calculate the full picture, including closing costs, terms, and any fees.
  • Look for Trust. Choose someone who takes the time to educate and guide you through the process. Buying a home is one of the biggest financial decisions you’ll make, and you need a partner you can rely on.

Key Takeaways for First-Time Buyers

  1. The rate quoted during pre-approval is just an estimate. It’s not locked in and may not reflect your final mortgage rate.
  2. Avoid falling for “too good to be true” rates. Be cautious about lenders who undercut the competition during pre-approval but don’t deliver at rate lock.
  3. Work with multiple lenders. This gives you options and ensures you’re not trapped by a single lender raising rates at the last minute.
  4. Focus on service, not just rates. A great lender will provide support, transparency, and a smooth experience.
  5. Your credit score won’t suffer from shopping lenders. Multiple mortgage inquiries during a short window won’t be treated as separate hits.

Buying a Home in Austin? Partner With an Expert

The process of buying your first home can feel overwhelming, but you don’t have to do it alone. Working with an experienced buyer’s agent ensures you have someone in your corner to guide you at every step—from choosing reputable lenders to closing on the perfect home.

If you’re ready to start your home-buying journey in Austin, we’re here to help. Get expert guidance, save time, and enjoy an stress-free experience with our team at your side. Check out our Austin Home Buyers section to learn a little bit more about our team and how we work. Then call/text us at (512) 827-8323, email us at info@11OaksRealty.com or fill out our Buyer Survey to schedule a no obligation consultation.

Need a Recommendation for a Top Austin Mortgage Broker?

Email us at info@11OaksRealty.com! We work with some top quality mortgage brokers who offer the best mortgage loan programs and will shop for the best rate for you. They’ll sit down and explain the mortgage process and help you select the best loan program.

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Filed Under: Buyers Tagged With: First Time Home Buyers, Getting a Loan, Interest Rates

About Rebecca Jacks

Rebecca has founded her success in real estate on a commitment to personalized service. Clients appreciate her dedication to not only the success of their transaction, but their very peace of mind. She is particularly adept at creating bridges to make home buying and relocation as seamless as possible.

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