When you start the home buying process, it’s a good idea to get preapproved for a mortgage.
After finding a lender you trust – and finding a mortgage with the right terms – you’ll go through the preapproval process. Once you’re preapproved, the lender will hand you a mortgage preapproval letter. You can add the letter to any purchase offers you make.
But how long does a mortgage preapproval last? Good question.
While it entirely depends on the lender, most preapprovals last anywhere from 30 – 90 days, with the majority of lenders issuing them for 90 days. Typically, you’ll find expiration dates included on preapproval letters. If your preapproval expires and you haven’t found a home, you’ll need to renew the preapproval.
We’ll touch on why mortgage preapprovals expire. We’ll cover how letting them expire impacts your credit report. And we’ll cover the ins and outs of preapprovals. You’ll want to keep them in mind as you’re trekking along in your home buying journey.
Remind Me, Why Do I Need a Mortgage Preapproval Letter?
Mortgage preapprovals aren’t mandatory, but it’s a very good idea to get one. A mortgage preapproval is a letter that signals to the seller and their real estate agent that you’re a serious home buyer who knows how much a lender is willing to lend and what loan terms they’ll offer.
What is a mortgage preapproval?
Buyers use mortgage preapproval letters to strengthen their purchase offer. In fact, some sellers won’t let buyers tour their homes without one. A preapproval letter also tells you how much you’re qualified to borrow. That way you know what price range you should be looking in while you’re house hunting.
A mortgage preapproval letter gives you financial clarity and a clear advantage over buyers who don’t have mortgage preapproval letters.
What is the mortgage preapproval process?
A mortgage preapproval isn’t a commitment from a lender. It’s an estimate of how much a lender believes you’re qualified to borrow after verifying your finances.
The mortgage preapproval process is nearly the same as the mortgage approval process, so it’s a good idea to collect all your financial paperwork before you apply for preapproval.To get a preapproval, the lender will examine your finances and credit history. The preapproval process includes a hard credit check that can lower your credit score by a few points. Remember to keep this in mind when you’re applying or reapplying for preapproval letters.
Is a mortgage preapproval different from a mortgage prequalification?
Yes. And we’re glad you asked. It’s important to know the difference between prequalification and preapproval.
Think of prequalification as a quick, informal interview for a loan. The borrower reports financial information the lender doesn’t verify but uses to create a loan estimate. Because a borrower’s finances are verified during the mortgage preapproval process, the loan estimate is more accurate and likely closer to the final amount the borrower will get.
While prequalifications are good for financial clarity early on in the home buying process, they don’t carry the same value as preapprovals.
When Should I Apply for Mortgage Preapproval?
You should get preapproved for a mortgage in advance. Ideally, you’d get preapproved just before you start shopping for a home. And before you start shopping for a home, shop for a lender. Ask your lender candidates about their policies, including:
- What kinds of financial documents and personal information you’ll need to provide, like bank statements, proof of income and tax returns
- How much the application costs
- How long the preapproval letter is good for
- How much a new preapproval letter costs
How long does the preapproval process take?
You might get a preapproval letter a day or two after applying. But every lender is different. Getting things rolling early is a great way to identify any pitfalls and address them. To keep things moving, ask the lender what paperwork you’ll need to collect before you apply.
Even with an excellent credit score and a low debt-to-income (DTI) ratio, it doesn’t mean your preapproval is a shoo-in. If you’re self-employed or your finances are complicated, a lender will need more time to verify your paperwork. If that’s the case, it’s doubtful that you’ll get a preapproval letter overnight.
Once you’ve gotten a preapproval, avoid things that might negatively impact your credit and your future mortgage, like new lines of credit or a car loan.
How Many Preapproval Letters Should I Have?
You can get preapproved for a mortgage with multiple lenders. Just be mindful of the effect multiple applications will have on your credit score. (We’ll talk more about this later.)
Shop around for preapproval loans. Give yourself options. One lender only gives you one option. When you’ve got several lenders competing for your business, you’ve got more options and you can compare offers to decide which one works best for you and which lender you want to work with.
Applying for preapproval multiple times
You can apply for a preapproval from different lenders multiple times. Because a preapproval isn’t a contract, you aren’t obligated to work with a lender because they issued a preapproval letter.
Having more options to choose from could mean better interest rates, and a better interest rate over 20 – 30 years can result in pretty significant savings.
Knowing this, some home buyers start home shopping with one preapproval letter. Once they’ve found a home, they start home loan shopping with a few lenders to see what rates they can get and to see if other lenders are willing to match a competing offer.
But for most buyers, what makes sense is to have the strongest preapproval offer in hand during the home shopping stage. Once you make an offer on a home, you may not have the time to shop for a better loan offer.
Preapproval and your credit score
There are some drawbacks to applying for preapproval with multiple lenders. Applying for a preapproval is similar to applying for a mortgage. Preapproval generally includes a hard credit check, and your credit score could dip a few points every time you apply for preapproval.
When you apply for mortgage preapproval, you authorize a lender to check your credit report from one or more of the three national credit bureaus (TransUnion®, Equifax® or Experian™). When a lender requests your report, it shows up on your credit report as a hard inquiry.
Because hard inquiries are associated with new credit accounts or lines of credit, they can cause your credit score to take a slide. If you get all your preapprovals done in 14 – 45 days (depending on the lender), those multiple hard credit checks will be recorded as a single inquiry by the credit bureaus.
These minor dips normally come off your credit report after two years. As long as you have healthy credit and you’re shopping for loans strategically, the drop shouldn’t impact your score by that much.
What Should I Do if My Preapproval Expires?
When your loan preapproval expires, you’ll need to contact your lender to reapply. Because the lender already has most of your information on file, it won’t take long to get a new letter.
Preapprovals come with expiration dates because a lot can happen in 90 days. Maybe you changed jobs, and you’re not making as much as you used to. Maybe an emergency came up and you had to dip into your savings.
When you approach a lender about getting a new preapproval letter, you’ll have to submit updated financial information that reflects how your finances fared over the last 2 or 3 months. If your finances changed considerably, you’ll probably see a change in your loan estimate.
If you’re working with one lender and your situation hasn’t changed much, the lender may not require a hard credit check – but that depends on the lender.
As Good as It Gets
If you’re looking for a competitive edge, walk into the home buying process (and the home of your dreams) with a preapproval letter in hand. It shows sellers and their real estate agents that you’re a serious home buyer.