Updated July 30th, 2019
If you’re looking to buy in a hot market, you can bet that you’ll face plenty of competition. In dense, popular cities like Washington, D.C. or San Francisco, where supply is low, demand is high, and prices rise seemingly by the hour, bidding wars are common. So how do you maximize your chances of getting your dream home?
Pre-approval for a mortgage is one of the best ways to show sellers you’re a serious, qualified buyer, and that you could quickly and smoothly close on a sale. That’s because pre-approval is the product of a careful, exhaustive investigation into your finances by your lender, and represents a firm promise on the lender’s part to issue you a mortgage. A pre-approval letter is essentially a guarantee.
Pre-qualification is simply an estimate of how much of a loan you might qualify for, based on self-reported financial information. For that reason, sellers take pre-approval much more seriously than pre-qualification.
But because it’s the product of a long process, pre-approval isn’t an instant, snap-of-a-finger process. In this post, we’ll go into detail on how long pre-approval can take, and why.
Of course, a real estate agent is always the best person to guide you through the complexities of the buying process, whether we’re talking about mortgage pre-approval versus pre-qualification, appraisals and contingencies, or the tricky business of crafting offers and counteroffers. An experienced agent has been through the buying process many times, and will be able to authoritatively answer any questions you might have.
How fast can you get pre-approved for a mortgage?
Unlike pre-qualification, which can be acquired in as little as an hour, pre-approval can take as long as 7-10 days. A lot of that depends on you, and a lot depends on your lender.
On your end, you not only have to fill out an application, you also have to produce all the required documentation. Most lenders will demand proof of income, which means tax returns and payroll stubs. You also must provide proof of employment, and a detailed list of all debts you’re currently repaying, including car and home loans, credit card bills, and student loans; you’ll also need supporting documents for each loan. On top of all that, you must provide recent bank statements detailing all your assets.
A few other documents could make the difference between a speedy pre-approval, or one that drags on. If a friend or family member will help you with the down payment, acquire a signed gift letter from them that spells out your arrangement. Appending marriage or divorce documents to your application could add further clarity to your financial situation and including a complete credit history might also speed things up.
Once you’ve gathered and submitted all these documents, your lender will assess your financial situation and calculate how much of a loan you qualify for. Since they’ll also be confirming much of the information you submit, this can take several business days. Your best chance at a fast pre-approval is to make sure you’ve included all relevant documents the first time around; each time your lender has to request more documentation or information from you, this might add days onto your wait.
How long do you have to buy a house after getting pre-approved?
In the real estate industry, the conventional wisdom is that pre-approval is good for 90-180 days, though at 180 days your letter might be considered questionable. Even at 90 days, some agents or sellers might consider your pre-approval to be expired.
Why? Since a pre-approval letter is essentially a lender’s validation of your financial situation, the more time that passes since the letter was issued, the greater the possibility that your financial situation could have changed. You could’ve lost your job, purchased new vehicles, or maxed out your credit cards, all of which would seriously affect your financial outlook.
But there’s a foolproof way to find out exactly how long your pre-approval letter is valid. The exact time frame will be included right in the letter.
Do you have to have a pre-approval to make an offer on a house?
No, but having a pre-approval letter can make the buying process faster and easier. Buyers with pre-approval letters are taken much more seriously by agents and sellers, as they have written proof that they can secure financing.
An offer from someone without a pre-approval letter is a statement of interest, with considerable risk and unknowns.
How to Get Pre-Approved for a Mortgage Loan
Getting a pre-approval letter is a straightforward, if somewhat time-consuming process. Here’s how a typical pre-approval process goes:
- Connect with a loan broker, who will guide you to a lender who fits your needs, or work directly with a bank.
- Fill out a pre-approval application. This can often be done online, depending on the lender.
- Gather and submit all required financial documents along with your application. This can include tax returns, pay stubs, loan history (with supporting documents), bank statements, and a gift letter if you’re receiving financial help with your down payment.
- The lender evaluates your income, expenses, liabilities, and credit score, and determines what kind of loan you qualify for, and in what amount.
- The lender issues a pre-approval letter stating the above financing parameters.
This process can take 7-10 days, or more if your initial application packet isn’t complete.
It can be a challenge to simultaneously juggle the demands of applying for mortgage pre-approval, looking at homes, and formulating an offer. Partnering with a top agent can help you smooth out your timeline, so the whole buying and bidding process is easier and less stressful.
Clever Partner Agents are elite performers in their markets, and can offer expert advice on everything from financing to closing. They also offer a full service agent experience for a low, flat fee, so they’ll save you a significant amount of commissions. If you’re ready to begin your home buying journey, contact us today for a free, no obligation consultation!
Top FAQs About Mortgage Pre-Approval
Can you be denied a loan after pre-approval?
In some cases, yes. While pre-approval is an indication you’re a good candidate for a loan at the time of application, that can change. Inevitably, some time will pass between the issuance of your pre-approval letter and when the loan underwriter begins to process your loan application, and there are several events that could result in a denied application, if they happened after pre-approval.
If you changed jobs, you’ll likely have to reconfirm your income and employment before a loan is approved. If you’ve opened new credit card accounts recently, or stopped servicing your debts, that could result in a lower credit score, which could derail your loan. Similarly, any large cash withdrawals that significantly draw down your cash reserves could adversely affect your application.
Does mortgage pre-approval affect credit score?
Yes, applying for mortgage pre-approval will affect your credit score, but there’s a way to minimize the impact. Because lenders and underwriters understand that it’s in your best interests to shop around among lenders to get the best rate on a loan, pre-approvals fall under a special rule. Any credit inquiries to lenders that fall within a two-week period will be counted as a single inquiry when calculated into your credit score. For this reason, it’s best to do your rate shopping as quickly and efficiently as possible, to minimize the damage to your credit score.
"Hard" credit inquiries usually follow a request for credit. Additional lines of credit or added monthly expenses affect a consumer’s ability to repay debts, which is why hard credit inquiries affect credit scores. Loan pre-approvals can fall under a special rule. Lenders and credit analysts understand the importance of rate shopping on a large purchase. If you have various lenders all make their inquiries within a two week time span, all of those inquiries are lumped together and only counted negatively, once. This allows you to apply for pre-approval from several lenders, without worrying about the impact on your credit score.
Is mortgage pre-approval a hard inquiry?
Yes, applying for mortgage pre-approval will trigger a “hard inquiry” by the lender, which will impact your credit score. This type of hard inquiry follows a request for credit, and since opening new lines of credit reduces your financial solvency, a hard inquiry is counted against your credit score. However, if you make all your pre-approval applications within a two-week period, they’ll only be counted as a single inquiry.
How long does it take for underwriting to approve a loan?
As a general rule, underwriting will usually approve your purchase application within a week of your loan officer receiving your complete application, including all required documentation. The underwriter themselves should be able to underwrite your purchase application within 72 hours of submission from your loan officer.
However, there are many factors that can slow this process down. First, if your application is incomplete, that will add days to the process as you and your loan officer work to gather the necessary documents. There are also internal staffing factors and external factors like weather, holidays, and seasonal rushes, that can affect your timeline.
Can you get pre-approved for a mortgage from multiple lenders?
Absolutely. When it’s time to get a pre-approval letter, it’s in your best interests to shop around among multiple lenders. Different loans can offer dramatically different terms and rates, so make sure to survey all the possibilities before you commit to one. Working with multiple lenders will also give you an idea of what it feels like to work with each institution, so you can find the right culture fit.
Better yet, if multiple lenders are competing for your business, they may offer you incentives like waived application fees, better rates, or other perks.