The preapproval process is similar to that of prequalification but takes more time and requires a more in-depth assessment of your income, assets, and credit. During the preapproval process, lenders will verify your information through a hard credit check and will take a look at your pay stubs and tax returns. A mortgage preapproval gives buyers an accurate understanding of what they can afford and will alert to sellers that they are ready and able to purchase a home.
Mortgage preapproval letters are typically valid for 60 to 90 days. The reason preapprovals expire after such a short period of time is because an applicant’s financial situation can change quickly, and lenders want the information reflected in the letter to be as accurate as possible. Because the process involves a hard credit check that can impact your credit score, consider seeking preapproval when you are more serious about house hunting. However, it is important to note that if you are shopping multiple lenders over a short period of time (within 30 days), the credit checks count as a single inquiry. If you want to get a better idea of the right mortgage for you without impacting your credit score, consider getting prequalified first.
In order to be preapproved for a mortgage, you must fill out a mortgage application. There are typically eight sections of the application which include:
- Type of mortgage and terms of loan
- Property information and purpose of the loan
- Borrower information
- Employment information
- Monthly income and combined housing expense information
- Assets and liabilities
- Details of the transaction
- Declarations
Once you have submitted the application, you will need to provide the lender with various documents including bank statements, pay stubs, W-2 and income tax returns, and a driver’s license. Depending on the lender, you can expect to wait a few days to a week for a response. However, some lenders guarantee same-day approval.
A lender will typically give you one of three decisions: pre-approved, pre-approved with conditions, or denied. If you are pre-approved with conditions, the lender may ask you to provide them with additional documentation or encourage you to improve your credit score prior to the loan. If you are denied mortgage preapproval, your loan officer is supposed to let you know why. Mortgage applications fail to receive preapproval if the applicant has credit issues, frequent change in employment, high debt-to-income ratio, or large, sudden cash deposits. If your preapproval gets denied, do not be discouraged. Use the feedback from the lender as an opportunity to fix your financial situation or find a loan more aligned with your needs.
Getting preapproved for a loan can be beneficial to those in the homebuying process and will help them stand out to sellers. For those who are not quite ready to put down an offer, a preapproval will help them determine how much they can afford in terms of a mortgage and allow them to develop an accurate housing budget.
When you are ready to take the next step, so are our mortgage originators.
