What You Should Know About Pre-Approval

         

How long is a pre-approval letter good for?

Getting a pre-approval letter is the crucial first step to house hunting. You can’t make an offer on a home without one.

But once you’ve gone through the process, how long does pre-approval for a mortgage last?

That depends on the lender. Some mortgage companies will honor a pre-approval letter for up to 90 days. Some, as few as 30.

But remember — getting pre-approved doesn’t bind you to a lender. You’re still free to shop around for the lowest rates before you buy.

You’re safe to get pre-approved as soon as you want to start house hunting, without feeling like you’ll be tied into financing too early.

Start your mortgage pre-approval here (May 28th, 2020)

Why mortgage pre-approval doesn’t last forever

No lender will give an open-ended commitment to finance your home. That’s because your circumstances might change. And it can’t have you collecting a loan months or years later on the strength of an old pre-approval letter.

In that time, your credit might have risen or fallen. Your income might have changed. And your qualified budget could be much bigger or smaller than it was when you first got pre-approved.

So what’s the answer to “How long is a preapproval good for?” Well, some lenders will honor their commitment for 90 days. And others only for 30, 45 or 60 days.

In other words, it’s up to each lender to decide on the shelf life of its pre-approval letters. So ask the ones on your shortlist what their policies are.

When to get pre-approved for a mortgage

In most cases, it’s best to get pre-approved right when you’re ready to start your home search. That way, you can take full advantage of the shopping window your lender allows.

Don’t ask for pre-approval too long before you’re ready to start shopping. There’s no point in falling in love with a home if your pre-approval letter’s out of date.

Luckily, the process for getting preapproved doesn’t usually take long.

Pre-approved vs. pre-qualified — what’s the difference?

Many homebuyers don’t know the difference between preapproval and prequalification. Actually, some lenders seem not to, either. Because some have their own definitions, which can be confusing.

But, generally, the difference is pretty clear:

  • Preapproval — You give your lender information and provide supporting documents as evidence. It runs a credit check and confirms the information you supply
  • Prequalification — You tell your lender stuff. And it assumes you’re telling the truth. No checks

You can see why many sellers and real estate agents think a pre-qualification letter is worth less than a pre-approval.

If you want to be sure you’re taken seriously as a buyer, only preapproval will do.

How to get pre-approved for a mortgage

Before you do anything, it’s worth spending a few minutes with a mortgage calculator. That can help you to be realistic about the amount you can borrow — and so the price of a home you can afford.

If you get your documents together in advance and upload them, it can take a matter of minutes to get pre-approved. Make sure you have your:

  • Social security number
  • Proof of employment
  • Last pay stub(s)
  • W-2, 1099, or other income tax forms
  • Recent bank statement

If your down payment is coming from somewhere other than your bank account, you’ll need the source documented too.

That could be a gift letter showing that you’re using gifted down payment funds. Or, it could be proof that you’ll be getting funds from the sale of an asset or splitting the down payment with a co-borrower.

After you provide these documents, all a lender needs to do is check your credit.

Remember, you’re not committing to the lender from which you get your preapproval letter. Once your offer on a home has been accepted, you’re free to shop around for the best mortgage deal then on offer.

And don’t worry — getting multiple pre-approval letters won’t hurt your credit if you get them all within two weeks of one another.

My preapproval letter has expired. What now?

Letter expired? Ask for another. You may need to provide more recent documents. And your lender will probably check your credit again.

But, providing nothing’s changed, a renewal shouldn’t be a problem. And it should be as quick and easy as your original request.

Just one thought: Some lenders charge for preapprovals. It shouldn’t be much. But it may incentivize you to apply only when you need to.

But not all lenders levy a fee. So you may prefer to use one that doesn’t. That alone would be a bad reason for picking a mortgage lender.

But you’re not picking one at this point. You’re entirely free to show an approval letter from one and later get your mortgage from another.

Should I lock my pre-approval rate (“lock and shop”)?

Your pre-approval letter will likely mention a particular mortgage rate. And the lender will have worked out the most you can afford in monthly payments at that rate.

That means if rates generally rise, your payments would be higher and might become unaffordable. This could affect the home buying budget you were originally approved for.

Not all do, but some lenders offer a way around this. They allow you to lock the rate in your letter. So, even if mortgage rates generally rise, you’ll still pay the same, lower rate it quoted.

>> Related: See today’s mortgage rates

So what’s the catch? Well, you’ll likely have to pay a deposit of 1% of the cost of your new home to lock that rate. If you think mortgage rates are likely to rise, that could be a good deal.

But you must make sure that deposit is refundable, in case you don’t proceed with a purchase. A few lenders might see your deposit as a fee and keep it.

Get pre-approved as soon as you’re ready to shop

Ready to start looking at houses? Make sure you get pre-approved first.

The pre-approval letter will give you a clear budget to help you shop. And if you decide to make an offer having that letter in hand will be crucial.

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