855 how long is a mortgage pre approval good for

How Long is a Mortgage Pre Approval Good For?

Kevin O’Leary March 14, 2024 0

Getting a mortgage preapproval is a crucial step in the home buying process. It not only helps you understand your budget but also demonstrates to sellers that you’re a serious and qualified buyer. But how long does a mortgage preapproval last? Let’s dive into the details and explore the validity period of a mortgage preapproval.

Understanding Mortgage Preapproval

What is Mortgage Preapproval?

Mortgage preapproval is a process where a lender assesses your financial situation and provides you with a conditional approval for a specific loan amount. This involves reviewing your income, assets, liabilities, and credit score to determine how much you can borrow and at what interest rate.

The preapproval process is more in-depth than a prequalification, as it requires submitting actual financial documentation. Once approved, you’ll receive a preapproval letter outlining the loan details, which can be used when making an offer on a home.

Mortgage Preapproval vs Prequalification

It’s important to note the difference between mortgage preapproval and prequalification. While both provide an estimate of your borrowing power, prequalification is based on self-reported information and doesn’t involve a thorough review of your financial situation.

On the other hand, mortgage preapproval requires a credit report and verification of your financial documents. This makes preapproval a more reliable and accurate assessment of your mortgage eligibility.

Mortgage Preapproval Process

To get preapproved for a mortgage, you’ll need to provide your lender with various financial documents, including:

  • Proof of income (pay stubs, W-2 forms, tax returns)
  • Bank statements
  • Asset documentation (investment accounts, down payment funds)
  • Identification (driver’s license, Social Security card)

Your lender will also perform a credit check to assess your credit score and credit history. They’ll use this information, along with your debt-to-income ratio, to determine your mortgage eligibility and the loan terms they can offer you.

Mortgage Preapproval Validity Period

How Long Does a Mortgage Preapproval Last?

The validity period of a mortgage preapproval can vary depending on the lender. However, most preapprovals are valid for 60 to 90 days. Some lenders may offer shorter validity periods, such as 30 days, while others may extend the preapproval for up to 90 days.

Preapproval Validity Period Timeframe
Short Validity 30 days
Standard Validity 60 to 90 days
Extended Validity 90 days or more

It’s crucial to note that a preapproval is not a guarantee of funding. The lender will still need to verify your financial information and assess the property you intend to purchase before providing final approval.

Factors Affecting Preapproval Validity

Several factors can impact the validity of your mortgage preapproval:

  • Changes in your financial situation: If your income, employment, or credit score changes significantly after receiving preapproval, it may affect your eligibility or loan terms.
  • Expiration of financial documents: Some documents, such as pay stubs or bank statements, may have expiration dates. If these documents expire before you find a home, you may need to provide updated information to your lender.
  • Lender’s policies: Each lender has its own guidelines for preapproval validity periods. Some may have shorter timeframes or require more frequent updates to your financial information.

Renewing or Updating Mortgage Preapproval

If your preapproval is nearing expiration and you haven’t found a home yet, you can request a renewal or update from your lender. This typically involves providing updated financial documents and undergoing another credit check.

Keep in mind that if your financial situation has changed since your initial preapproval, it may impact your eligibility or the loan terms offered. It’s essential to communicate any changes to your lender to ensure your preapproval remains accurate.

Benefits of Mortgage Preapproval

Determining Home Buying Budget

One of the primary benefits of getting preapproved for a mortgage is that it helps you determine your home buying budget. By knowing how much you can borrow, you can focus your home search on properties within your price range.

This saves you time and effort, as you won’t waste time looking at homes that are outside your financial means. It also prevents potential disappointment if you fall in love with a property only to find out you can’t afford it.

Strengthening Purchase Offers

In a competitive housing market, having a mortgage preapproval letter can strengthen your purchase offer. Sellers often prefer buyers who have been preapproved, as it demonstrates their ability to secure financing and close the deal.

When you submit an offer with a preapproval letter, it shows the seller that you’re a serious and qualified buyer. This can give you an advantage over other buyers who haven’t taken this step, increasing your chances of having your offer accepted.

Streamlining the Home Buying Process

Getting preapproved for a mortgage can streamline the home buying process. Once you find a property you love, having preapproval in hand allows you to move quickly and confidently.

Your real estate agent can use your preapproval to guide your home search, ensuring you’re looking at properties that fit your budget. When it comes time to make an offer, you can act fast, knowing that you have the necessary financing in place.

Mortgage Preapproval and Credit Score Impact

Hard Inquiries from Mortgage Preapproval

When you apply for mortgage preapproval, the lender will perform a hard inquiry on your credit report. A hard inquiry occurs when a lender checks your credit to make a lending decision, and it can slightly lower your credit score.

However, the impact of a single hard inquiry is typically minimal, usually around five points or less. The effect of a hard inquiry on your credit score also diminishes over time, and the inquiry will fall off your credit report entirely after two years.

Multiple Preapproval Applications

If you’re shopping around for the best mortgage rates and terms, you may be wondering how multiple preapproval applications will affect your credit score. Fortunately, credit scoring models recognize that multiple mortgage inquiries within a short period are likely due to rate shopping.

As a result, multiple hard inquiries for mortgage preapproval that occur within a 14 to 45-day window (depending on the scoring model) are typically treated as a single inquiry. This means that applying for preapproval with multiple lenders during this timeframe won’t have a compounding negative effect on your credit score.

Improving Credit Score Before Preapproval

If you’re concerned about your credit score and want to improve it before applying for mortgage preapproval, there are several steps you can take:

  • Check your credit report for errors and dispute any inaccuracies.
  • Pay down existing debt to lower your credit utilization ratio.
  • Make all payments on time to establish a positive payment history.
  • Consider using tools like Experian Boost to get credit for utility and streaming service payments.

By improving your credit score before applying for preapproval, you may qualify for better mortgage rates and terms, potentially saving you money over the life of your loan.

In conclusion, mortgage preapproval is a valuable tool in the home buying process. While the validity period of a preapproval can vary, most last between 60 to 90 days. By understanding the preapproval process, its benefits, and its impact on your credit score, you can navigate the home buying journey with confidence and secure the financing you need to make your homeownership dreams a reality.

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