How Mortgage Pre-Approvals Work

An essential part of the home-buying process is getting pre-approved for a mortgage. When your lender has checked your finances, they will issue a pre-approval letter. You can use this letter to show sellers you are a serious buyer when you make an offer. A common question among buyers is how long it takes to get pre-approved for a mortgage. Depending on the lender, it is anywhere from 24 hours to a week.

However, do mortgage pre-approvals expire? This approval has a time limit, so you can’t delay too long without getting a fresh pre-approval letter.

When you apply for pre-approval, your lender will look at your credit score, income, assets, and debts to calculate how much they will loan you.

This process is essential as it shows how much you can spend on your next home. Frequently, real estate agents require a pre-approval letter to show you a home, but even if that isn’t the case, the letter will make your offer more attractive to a seller. If there are two competing offers and only one has a pre-approval letter, you can guess which one the seller will favor.

Another advantage of pre-approval is that much of the home loan process has been completed before your closing date. This means you can take care of some financial documents less urgently.

As well as pre-approval, you can get prequalification for a home loan. However, these things are not the same and should not be confused. Prequalification does not give you an accurate assessment of whether you will qualify for a loan. It does not involve a check on your credit report and is only an estimate of the loan amount you will qualify for.

What is a pre-approval letter?

When a lender finalizes your pre-approval, they will give you a letter with details about the mortgage, including the loan amount and interest rate. You will need this vital letter to know your budget when searching for homes, and real estate agents are also likely to ask you to see the letter before they show you a property.

The letter also shows the seller that your offer on their home is legitimate, and you probably won’t have trouble getting the mortgage necessary to close.

How long does the pre-approval process take?

Pre-approval involves filling out an application and providing documents. The lender will verify the information and your credit history. You will be asked questions about your finances and the home you want to buy.

The lender will review recent bank statements and check your income and assets. The lender wants to make sure you can afford to pay back the amount of money they are going to loan to you.

Any unpaid bills or debts indicate that you are not as likely to repay the loan as the lender wants. But if you pass this process, they will issue you a pre-approval letter. This whole process could be over in as little as just a few days, and then you can begin to search for your next home.

How long does a pre-approval for a mortgage last?

It is up to the lender to decide how long their pre-approval is valid. In general, this is between 60 and 90 days. The reason pre-approvals don’t last longer is down to the fact that your financial situation can change dramatically in just a few months. More extended agreements will likely not represent how much they will lend the borrower.

The borrower’s credit score could worsen when the pre-approval letter is valid. They might take out another loan that changes the debt-to-income ratio.

Things like these can mean they no longer qualify for the loan they previously did. However, it might mean that the lender has to charge more interest or reduce how much they lend.

It is also possible that the borrower’s finances improve after they receive their pre-approval letter. They may have taken steps to improve their credit score or paid down some of their debt. These things could mean they pay less interest or qualify for a larger mortgage.

Even if someone’s financial situation doesn’t change in 60 to 90 days, their pre-approval will expire. They must apply for pre-approval once more if they still plan on buying a home.

Is it a good idea to get multiple pre-approvals?

It is possible to get multiple pre-approvals if you want to, but it can harm your credit score. When you apply for pre-approval, the lender will create a hard inquiry on your report, which can temporarily reduce your credit score. Many hard inquiries don’t look good to lenders, making you seem desperate for a loan.

However, to allow you to shop around for a home loan, there is a grace period of up to 14 days. Making multiple applications now will only appear as one hard inquiry on your credit report.

So, if you plan on comparing different lenders, make sure to leave significant gaps between your applications.

When is the right time to apply for a mortgage pre-approval?

You will want to seek pre-approval from a lender early in your search for a new home. Pre-approval gives you a clear understanding of how much money you can afford to spend, so this is something that you should do at the beginning so you save time looking at homes you can afford.

Since pre-approval will only be valid for a few months, the best time to get it is when you are confident you are ready to begin your search seriously. If you get pre-approval before purchasing a house, there’s a good chance it will expire.

Final thoughts

A pre-approval letter will only be valid for two or three months, so you must wait for one when you are in the right situation to begin your search. This should avoid the need to repeat the pre-approval application.

Bill Gassett is the owner and founder of Maximum Real Estate Exposure.

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