It’s usually a good idea to get pre-approval before looking for a new house. But what if you’re not able to get a new house immediately? How long will that pre-approval last? That’s what we’ll talk about in this article. You’ll find why it is a good idea to get pre-approval with a mortgage lender before going out with a real estate agent to seek for the perfect property.
What is Pre Approval?
A pre-approval gives you a ballpark figure for your house budget to help you narrow down your search. It also increases your credibility with sellers by demonstrating that you are a serious buyer. However, obtaining pre-approval does not imply that you are under contract with that particular lender. During your property hunt, you can apply with a new lender at any time. The pre-approval letter effectively confirms to sellers that you can obtain mortgage money.
How Long Does It Take To Get A Mortgage Pre approval?
Depending on your lender, the length of time a mortgage preapproval is valid before it expires can vary. It usually lasts between 60 and 90 days. Your financial status might change dramatically in a matter of months. And so, many lenders are unwilling to accept the chance of a prospective borrower’s agreement falling through after 90 days.
A borrower’s financial status changing can be beneficial. For example, they may have discovered that they have a low credit score during their initial preapproval. If they lower their debt-to-income ratio and take other actions to improve their score, the borrower may be able to get a lower interest rate on their next mortgage preapproval.
Alternatively, their credit ratings could fall, their debt could rise, or something else could impair their capacity to make mortgage payments. Thus, reducing their chances of going further in the loan process. In that situation, they may be offered a higher interest rate or a reduced loan amount as compensation for their preapproval. Or, if the negative changes are significant, you may not qualify at all.
Some people’s financial situations remain unchanged, but because they haven’t purchased a home, their mortgage preapproval expires. They will need to obtain a fresh preapproval letter. If your letter of recommendation has expired, you must find a new lender or reapply to the same one.
How Long Does a Pre Approval Letter Last?
Lenders must examine your recent financial records to evaluate how much money they are willing to lend you. They’ll want to look into your credit history as well as your present debt, income, and assets to determine your ability to shoulder the financial burden that a mortgage entails. The process of issuing pre-approval might take days for traditional brick-and-mortar lenders. Working with a digital lender speeds up the process significantly. Thus, allowing you to get a basic pre-approval in as little as 3 minutes. When you apply for pre-approval, most lenders will require the following basic documentation:
- Evidence of residency
- Number of Social Security
- Tax documents include a driver’s license, passport, or state-issued identification (last two years of federal income tax returns).
- Evidence of employment and income (recent W-2 forms, paystubs, bank statements, etc.)
Lenders can then produce a pre-approval letter based on this financial snapshot, anticipating how much money they could be willing to provide you and what kind of loan conditions you might be eligible for based on their qualifying standards. Exploring pre-approval with numerous lenders allows you to evaluate your alternatives, such as loan amounts, terms, and interest rates. You’ll be able to discover which lenders offer the best financing alternatives without having to commit at this point.
How Long Does a Home Loan Pre-approval Last?
Pre-approval is often good for two to three months after it is issued, depending on your lender. After this period, you will most likely be required to provide current evidence regarding your financial situation so that your bank or lender can determine whether and how much your circumstances have changed. After this period, a lender may be willing to pre-approve you for the same amount, more or less, depending on your circumstances and needs.
How do I obtain pre-approval?
Pre-approval is an easy and painless process, especially if you gather the necessary paperwork ahead of time. The majority of lenders will require your social security number, evidence of employment, most recent pay stubs and W-2s, and current bank records. In addition, if you are receiving assistance with your down payment, you must produce a gift letter. The entire pre-approval process takes only a day or two.
Most lenders will pre-approve you for 90 days, however some will only pre-approve you for 30 days. Because lenders qualify you based on your current financial profile, the time frame is limited. Your income, down payment, or credit score may vary over a six-month or longer time. As a result, they give you a rather small opportunity to protect yourself against additional risk.
When should I apply for pre-approval?
Because pre-approval letters expire, it is better to apply when you are genuinely ready to buy a property. This will allow you to make the most of the letter’s length.
What happens if my pre-approval is no longer valid?
If you haven’t discovered the home you want within the pre-approval period, simply request another letter from your lender. If nothing has changed in your financial circumstances, the process should be quick and simple. You may be required to supply updated papers and have your credit checked again. Some lenders do charge a fee for a pre-approval letter; be sure to double-check before giving the green light.
What is the distinction between pre-approval and pre-qualification?
Perhaps you’ve heard of getting pre-qualified and are wondering if that’s a better option than getting pre-approved. Pre-qualification only provides you with an estimate of whether you qualify for a home loan and how much you can borrow. With pre-qualification, there is no documentation or credit check, thus everything is relied on verbal information. As a result, it is less dependable and does not guarantee financing. A pre-qualification letter will not provide you with the same negotiating power as a pre-approval letter.
Don’t panic if you were pre-approved but missed your letter’s deadline! All you have to do is request another and you’ll be back out looking at properties in no time.
How Do You Apply for a Home Loan Pre-approval?
Generally, when you apply for pre-approval, a lender will want to obtain a sense of your financial situation. Each lender’s requirements will be slightly different, however in order to apply, you will normally need to provide:
- Documents that identify you, such as a photo ID, a Medicare card, or a copy of your Australian passport
- Bank account statements demonstrate the amount of money you have saved for a deposit. Typically, at least two months’ worth of statements are required, with some lenders requiring more.
- Information about your assets (such as vehicles or other real estate) and obligations
- If you have any credit card statements, please provide them.
- Income documentation, often in the form of paystubs,
- An overview of your monthly living expenses, including everything from groceries to school fees to discretionary spending.
Lenders will want to see these documents to get a sense of your spending habits and earning potential so that they can determine how much money they are willing to pre-approve you for.
Similarly, when you apply for pre-approval, lenders may ask you about the price range in which you are looking for a property. This is to help them understand your specific needs and criteria.
How long does it take to get a home loan pre-approval?
Once you’ve applied for pre-approval, it might take anywhere from several business days to several weeks for your application to be processed. However, some lenders claim applicants can obtain their results the same day they submit them. In general, the more complicated your finances are, and the busier your preferred bank or lender is, the longer the process will take. If your application is incomplete, or if your lender needs more information about your financial situation, the process may take longer as they wait for you to supply extra paperwork or supporting evidence.
What are the benefits of pre-approval for a home loan?
Obtaining pre-approval for a home loan has several advantages. These include notifying sellers that you are serious, potentially allowing for a shorter conditional period, which may bring settlement closer, and providing you with the confidence to know your budget before making an offer on a property you like.
- Allowing a vendor to know you’re serious: If you have pre-approved financing, it can demonstrate to a seller that you are serious about making an offer on a house and that you already have the conditional approval of a bank or lender, which could mean they will regard you as a safer alternative than someone who does not have conditional permission.
- Reduced conditional period: Having your financing conditionally pre-approved may provide you an advantage over other purchasers in the same price range because it will take you less time to get the final approval from your bank or lender. This may imply that you can give a shorter time period for loan approval before the contract becomes unconditional, but you should consult with your lender before decreasing the condition in your contractual offer.
- Confidence in your budget: Once you have pre-approved financing, you may search for properties within a specific price range, with a fairly clear sense of the maximum price you can afford, which may make house buying easier.
What are the drawbacks of pre-approval for a house loan?
If you are looking for pre-approval, you should think about when you apply because pre-approval might expire quickly and several applications can have an influence on your credit score.
Pre-approvals are normally only valid for two to three months, so you may want to wait until you are confident you are ready to buy a property before obtaining one. Otherwise, you may have to reapply, which can be unpleasant and have an influence on your credit score.
Influence on credit score: When you apply for pre-approval, the bank or lender will perform a credit check to determine your credit history. These checks will remain on your record, and having too many of them can have an impact on your credit score, as lenders may see multiple applications in a short period of time as a hint that you are a dangerous customer and may be less eager to lend to you.
Given the possibility of several applications negatively impacting your credit score, it is vital to consider submitting to only one bank or lender for pre-approval rather than multiple applications.
Is a Pre-Approval Letter a Guarantee for a House Loan?
It is critical to note that pre-approval for financing does not guarantee that a lender would lend you money to buy a home, and it is not the same as receiving full, unconditional permission for financing. Pre-approval is generally subject to several criteria, one of which being that final approval is “subject to a satisfactory valuation.” This implies that the lender will want to obtain a sense of the property’s valuation and how much you’ve offered for it before deciding whether the loan is too risky. If the lender believes you have overpaid the seller, your application may be denied. Similarly, if a lender believes that the property itself poses a risk – whether due to its location, condition, or another aspect – your application may be denied.
Does a mortgage pre-approval have an expiration date?
Pre-approvals have a shelf life since lenders cannot commit to pre-approving a mortgage for any borrower indefinitely. Personal financial conditions might vary over time, so lenders must base their pre-approval projections on current data. They accomplish this by reviewing your most recent time-sensitive data, such as pay stubs, bank statements, and credit ratings.
The pre-approval process (described below) entails providing a set of standard financial documentation, but the particular requirements and expiration dates vary by lender. Most mortgage pre-approvals are good for 30 to 90 days, after which your pre-approval letter will expire. Remember that certain lenders conduct a hard credit check while examining your financial history, which might result in a drop in your credit score.
Lenders must re-verify your finances before closing your mortgage. A more thorough examination and screening process will determine the final lending amount of your mortgage. If you know you plan to buy a house or refinance your mortgage, you should postpone any substantial financial adjustments until you complete the transaction. Avoiding large credit card purchases, moving jobs, and making considerable cuts to your savings or other key assets will help you prevent last-minute surprises.
Is It Okay To Get Pre Approved By Multiple Lenders?
It is not only ok, it is also very necessary to obtain preapproval from multiple lenders. Many experts advise obtaining three preapproval letters from three distinct lenders. Each mortgage lender will provide you with a unique offer that includes their own interest rates, loan amounts, origination fees, and other upfront closing charges.
Does Pre Approval Lock In Your Rate?
When you get a mortgage pre-approval, your interest rate is usually locked up for 90-120 days. If interest rates rise within that period, you will still receive the specified rate. If interest rates fall, you may be able to acquire a better mortgage rate when you’re ready to close.
Most mortgage preapproval letters are valid for 60 to 90 days. The amount you are approved to borrow, your interest rate, and other terms and circumstances will be listed in your mortgage preapproval.
Borrowers should typically wait until they are ready to actively seek a home before getting preapproved. This will prevent their preapproval letter from expiring and allow them to confidently bid on their future property.
Frequently Asked Questions
Do pre approvals hurt credit score?
Inquiries about pre-approved offers have no effect on your credit score unless you go ahead and apply for the credit.
What happens when your pre approval expires?
If your pre-approval runs out, you may be required to supply further documentation, such as your most recent bank statements.