Updated July 30th, 2019
If you’re seriously looking for a home in the near future, getting your ducks in a row now will serve you well. One of the biggest stressors is getting a mortgage approved so you can afford to buy your dream home.
By getting a mortgage pre-approval letter, you’ll have a good idea of what price range you can afford and you could have a leg up on competing home buyers. But, they do expire, so you want to make sure to time the process right.
A real estate agent can help you find a great lender, time the process with finding a home, and use a pre-approval letter to your greatest advantage.
How long does a mortgage pre-approval last?
Once pre-approved, your pre-approval letter typically lasts 60-90 days before you have to get a new one. While this may seem like a long time upfront, it doesn’t allow for a leisurely stroll through weeks of open houses to find something that may work. Finding the house that you want to spend time in (and a lot of money) takes a bit of time, so you’re going to want to move as quickly as possible.
How long does it usually take to get pre-approved for a mortgage?
While getting pre-approval for a mortgage may seem like a big deal, the actual process only takes about one to three days on the lender’s end. It will likely take you more time to gather up all the needed materials from your files and tax documents than it will to get approval from the bank.
What happens after mortgage pre-approval?
Once you’re pre-approved by your lender for a mortgage, you’ll receive a pre-approval letter that shows they have verified your assets and are likely to be approved up to a certain amount for a loan on a home. Depending on the market, mentioning this pre-approval in an offer you make on a home for sale may give you some leverage. It signals to sellers that you’ll be likely to secure a loan and that the sale will go through smoothly.
Can I get a pre-qualification instead of a pre-approval?
You sure can. But does it mean anything? Not really. A pre-qualification letter is useful for you as a buyer because it may tell you a hypothetical interest rate and monthly payment based on your financial situation. But, it will do little to boost your chances of making a successful offer on a house. All it says is that you appear to be qualified for a loan of a certain amount based on the numbers you have given the lender — which haven’t been verified by any documents or tax forms like is done with a pre-approval letter.
Why do pre-approval letters expire?
To Create a Debt-to-Income Ratio Check
As with our feelings toward our in-laws, income and debt levels fluctuate frequently. Lenders put a time limit on pre-approval letters because they want to create a system for re-checking your debt-to-income ratio somewhat frequently. For example, you could secure a pre-approval letter one week, then lose your job, get into a car accident, and rack up some major credit card debt in the following weeks.
Since pre-approval letters typically last 60-90 days, your past approval isn’t necessarily representative of your current situation. And while your lender would probably discover your worse-off financial situation prior to closing on the loan, they want their pre-approval to be as accurate as possible to maintain their reputation and the trust of the seller.
Locked-In Mortgage Rate
Another reason pre-approval expires is because some lenders may offer a rate lock for a certain period of time — and you may have to pay a fee for it. Once this timeframe expires, you’ll need to reapply and current rates will apply.
Since interest rates can fluctuate daily, you may consider getting this locked-in rate if the rates are predicted to go up in the time from your initial pre-approval and closing on the home. Keep in mind that this rate is locked even if the interest rates go down (unless you have the option for a one-time “float down” in the fine print of your pre-approval paperwork.
What should you do when your pre-approval expires?
Don’t panic if your pre-approval time has lapsed. Your lender will simply update your finances and information and issue a new one with a new expiration date at your request. The downside is that your credit score may drop a few points each time since each approval creates a “hard check” on your credit report. Too many of these flags, and you could be disqualified from getting a loan. So, only seek out a pre-approval when you are seriously looking for a new home — ideally you’ll only need to get one before closing.
How does the pre-approval process work?
Before Going to a Lender
Before marching into that banker’s office and stealing a fancy pen, make sure you have all the documentation you’ll need for them to make a decision about your worthiness. Take your best guess at your current annual income and bring proof of employment (along with pay stubs for the last 60 days and two years’ worth of past federal tax returns and W-2s).
Bring your photo ID, and investment and bank account statements from the last 60 days. Make a list of any major assets or debts that may not appear on your credit report. Bring the social security number for yourself and a spouse or anyone else who will be on the loan. The lender will use this to run your credit score and history.
Have a good idea of how much cash you have for a down payment. Since you can’t use a credit card or a loan for this, your lender will check to see that this money is in your possession. Lenders will follow a paper trail and want documentation of the origin of any down payment money. If you’re getting money from friends or family, bring a letter saying it is a gift free and clear and you aren’t expected to repay it later.
Mortgage Lender Pre-Approval Process
After you’ve gathered everything, bring it all (or email it) to the lender to start the pre-approval process. They’ll run your credit history at this time and pass the information along to their underwriters to determine whether you are pre-approved, for how much, and at what interest rate. They may also contact you for additional proof of income or other items. If you have a good credit score (between 620 and 800), and a low debt-to-income ratio, you’ll typically get approved easily.
Does a pre-approval letter guarantee me a loan?
A pre-approval letter simply shows that it is likely you will be approved for a loan in the future, if all factors remain the same. Now is not a good time to get a new car loan or quit your job, as this could prevent your loan from being approved. But, if your credit score remains solid, you don’t take on any new debt, and you have the same income level, you can be confident your loan will go through.
Seek Help to Make a Competitive Offer
While getting pre-approved my help a seller know your offer is serious and you’re a good candidate for a mortgage, a real estate agent can provide insight to other ways to get your offer accepted. Clever partners with full-service realtors across the country who are experts at getting buyers into their dream homes for the best price. Plus, when you work with a Clever Partner Agent, you’re eligible for a $1,000 rebate — or up to 1% for homes over $500,000 — to help cover your closing costs (in 40 qualifying states).
Get in touch to learn more and connect with a top-rated, local agent for a no-obligation consultation.
FAQs About Mortgage Pre-Approval
Does mortgage pre-approval affect credit score?
When you ask a lender for a mortgage pre-approval letter, the process for doing so includes a “hard check” on your credit history. While this won’t greatly affect your credit score, it could cause it to temporarily drop by a few points. If you continuously let your pre-approval lapse and reapply, it could negatively affect your ability to get a loan because your history would show multiple hard checks within a short period of time. This is why it is best to wait to get pre-approved until you’re seriously searching for a new home.
Is mortgage pre-approval a hard inquiry?
During a mortgage pre-approval process, your lender will perform a “hard inquiry” on your credit history. Hard inquiries may cause your credit score to drop temporarily by a few points. It is best to not apply for any other loans when in the process of getting pre-approved for or closing on a mortgage, because multiple hard inquiries can negatively affect the underwriting of your loan. On the other hand, a “soft inquiry” does not affect your credit score and includes instances like when you check your own credit, or your employer conducts a background check.
Can you be denied a loan after pre-approval?
Being pre-approved for a loan doesn’t mean you’ll automatically be approved when the time comes to purchase the home, especially if certain factors have since changed. When you’re in the process of closing on a loan, don’t do anything that could lower your credit score, like opening a new credit card, or missing a debt payment. Stable employment is important, so now is not the time to make a switch to a new job. Also, make sure you can still show you have the cash for your down payment, so don’t move any money from your savings account and continue to save as much as you can for cost related to buying your new home. If all of these factors remain the same, it is likely your loan will be approved.
Should I pre-qualify with multiple lenders?
It’s a good idea to shop around for the best mortgage, and this may include getting pre-qualified or pre-approved by multiple lenders. You may receive different terms with each, including a different interest rate, closing costs, and down payment minimums. While it may be tempting to apply to every bank to see who has the best rate, contacting two or three should suffice. Plus each pre-approval process requires a hard check which can negatively affect your credit score. If you do decide to reach out to multiple lenders, do them all in a short timeframe (within a month or so). This will more than likely cause the credit bureau to see all the checks as related and count them all as just one hard inquiry.