A mortgage preapproval letter can be an exciting step in the home-buying process, proving that you’re ready to start looking at homes. However, your mortgage pre-approval is only valid for a short window, adding pressure to put in offers.
Getting reapproved takes time away from house hunting and can also diminish your possibility of getting the home you desire in hot markets. Today, we’ll explore all the elements of a mortgage preapproval, including what to do if your pre-approval expires.
What is a Mortgage Preapproval Letter?
A mortgage pre-approval letter is a document from your chosen lender that estimates how much you can borrow based on your borrower profile. This estimate includes your credit report, income, assets, and debt-to-income ratio.
Pre-approval letters are more substantial than prequalification because they show that your chosen lender will provide you with a certain loan amount for a specific loan program. This letter gives you a competitive advantage against other home buyers and assures sellers that your purchase offer isn’t likely to fall through.
However, not all mortgage lenders will offer mortgage preapproval letters; some may only provide prequalification.
How Long Does Mortgage Preapproval Last?
Every lender will have a different preapproval process, including when the mortgage preapproval expires. Some may have a window as short as 30 days, but many lenders have a period of up to 90 days.
How to Get Pre-Approved for a Mortgage?
The pre-approval process is straightforward and can be done online within a week. You choose your loan program, submit your financial information, and wait for the lender to assess your financial profile before receiving your letter. The steps involved in mortgage pre-approvals include the following.
1. Check If You Qualify With a Mortgage Lender
First, you’ll examine the specific requirements of each loan option to determine which would be best for your circumstances.
Some key elements to consider when comparing lenders are their requirements for a borrower’s credit score, the type of down payment they expect, and the maximum monthly debt obligations, called the debt-to-income ratio.
2. Gather Documentation
While you compare multiple lenders, you can start getting your financial documentation together.
Different lenders require different information, but all will generally need these for an application:
- Social Security number
- Driver’s license or other government-issued identification
- Pay stubs or other proof of income from the last 30 days
- Other income, such as Social Security or child support
- Employment information from the previous two years
- Business records, if self-employed
- Gift letter, if you will be receiving gift funds for the down payment
- Bank statements from the last 60 days, including savings
- Investment account statements for the previous 60-90 days
- Two years of tax returns
- Credit report and credit history
- Loan statements for credit cards, student loans, and car loans
- A list of other property you own, as well as their debt burden
- List of recent residences
- Rent history, including landlord contact information and proof of rent payments
3. Submit for Preapproval With a Lender
Once you have all your financial documents, you can sign up for a mortgage approval. You’ll answer questions about your credit score, income, whether you’re working with real estate agents, the property you’re interested in, and your contact information.
One of our loan officers will contact you and explain the preapproval process, including how to upload your documents. Then, we’ll perform a credit check and assess your financial situation.
4. Receive a Mortgage Loan Preapproval Letter
Mortgage pre-approval can take a week or more. During this time, a loan officer from our team will review your information and assess your ability to secure financing.
If we decide you’re eligible, we will provide you with a mortgage pre-approval document stating the amount you can receive, including the maximum loan amount we believe you can afford. You can then include this while making offers, giving you a competitive edge against other potential homebuyers.
What Happens if My Mortgage Pre-Approval Expires?
Mortgage preapproval will only last a few months at most, so it’s crucial that you act quickly after getting your letter. Should your mortgage pre-approval expire before you submit a bid and begin the mortgage process, there can be downsides and delays.
-
Credit Score Reduction
Each preapproval process requires a hard inquiry. Hard inquiries negatively impact credit scores, and even a few points can reduce your purchasing power. Additionally, interest rates may have changed since your initial preapproval, potentially causing you to miss out on a better interest rate.
-
Appearing Less Competitive to Sellers
Coming to sellers with a preapproval letter past its expiration date can make them leery, as they might doubt your qualifications for the home purchase. In a competitive market, where homes sell quickly, expired pre-approval letters can hinder your chances of securing your desired home.
-
Potential Delays When Closing The Deal
While preapproval is a vital step in your home-buying journey, it takes time. Each time you have to get preapproved again, it causes delays that will set back your home search and cost you precious time.
How to Renew Your Preapproval Letter?
It’s possible to renew a pre-approval letter, though it will take additional time and additional documentation. You will essentially start the whole process over again, though your loan officer will still have some of your details on hand.
-
Contact Your Loan Officer
First, contact your mortgage lender and explain that your approval letter expired. They will provide you with more information on how to submit your updated documentation.
-
Documents Required
As some of your information will have stayed the same, your lender will mainly consider your most recent financial details. You must provide updated bank statements and information on investment accounts to show that you have enough for your down payment.
Additionally, you’ll show updated records on your other debts to recalculate your debt-to-income ratio. This step is to ensure you can still afford a mortgage payment with your current borrower profile.
The lender will also order another credit check, which will negatively impact your credit history. If you were on the threshold of home loan approval, you may no longer qualify, and your mortgage rate could change.
Summary
F5 Mortgage is here for you through all steps of the home-buying process, from the loan application and beyond. Contact us today to discuss your options and learn which of our products may be right for you.
You can also get a free quote and check out today’s rates, ensuring you have all the information you need to make an informed decision.
How Long Does It Take to Get a Preapproval Letter?
The length of time to preapproval depends greatly on the lender. However, most lenders will take a week or more to examine your documents and decide whether to preapprove you.
Does Preapproval Mean You Get the Loan?
No, a preapproval does not mean you are immediately approved for a home loan. Instead, it shows that you have the qualifications to be approved and will likely secure a loan.
How Much Does Pre-approval Cost?
There is no charge to get a pre-approval letter.
Is It Better to Be Prequalified or Preapproved?
Preapproval is a better option than getting prequalified, as it requires more extensive documentation and, therefore, a better snapshot of your financial health.
Prequalification only shows how much you are likely to be able to afford based on self-reported information, with no credit reports necessary.
Is It OK to Get Multiple Preapprovals?
You can get preapproval from more than one lender if you so choose, but each one will require a hard pull of your credit report, which will affect your credit score. This can disqualify you if your score significantly drops from the multiple inquiries.
