Like many people, you may be considering purchasing a home soon. If that’s the case, then you’ll want to get preapproved for a mortgage. Getting preapproved is an important step in the homebuying process and can help you save time and money. What is a mortgage preapproval, and how long does it take to get preapproved? What are the requirements to get preapproved, and how long is a preapproved mortgage good for? We’ll explain everything you should know about preapproval and tell you how to get started on the process.
What is a mortgage pre-approval?
Preapproval for a mortgage is a letter from a mortgage lender that indicates how much money you can borrow for a new home. The amount of money you’re approved for will be based on factors like:
- Credit history/score
- Employment history
Getting preapproved for a mortgage is important because it gives you an idea of the loan amount you can borrow. It can speed up the homebuying process because it shows sellers you’re a serious buyer, giving you an advantage when bidding on a home.
What is the difference between a mortgage preapproval and a pre-qualification?
You may have heard of pre-qualification and pre-approval for a mortgage. While both options are important in the mortgage process, they’re not the same.
Mortgage pre-qualification is a preliminary step that gives you an idea of how much money you can borrow based on your financial situation. It’s a good first step if you’re unsure about how much house you can afford, but it’s important to remember that pre-qualification isn’t the same as a preapproval.
Preapproval for a mortgage is a thorough process that gives you a more accurate picture of how much money you can borrow for a new home. Your lender will look closely at your financial situation, including your employment history, gross monthly income, and credit score. They’ll also require documentation from you, such as pay stubs and tax returns. Based on this information, they’ll give you a more accurate valuation of how much money you can borrow for your new residence.
When should I get a mortgage preapproval?
The homebuying process can be a lengthy one. So, if you’re serious about buying, then it’s a good idea to get preapproved for a mortgage as soon as possible.
Real estate agents often recommend that buyers get preapproved for a mortgage before beginning their home search. This is because it can save you a lot of time and hassle during the mortgage application. For example, if you’re approved for a certain loan amount, then you’ll know to look only at homes within your price range, and you can bid on those homes with confidence because you know you have been preapproved up to that dollar amount.
What do I need to get a mortgage preapproval?
Whether you’re looking for FHA loans, VA loans, or fixed-rate mortgages, most lenders will require similar documentation from you, including:
- Identification (driver's license, passport, etc.)
- Social Security number
- Proof of income (pay stubs, tax returns, etc.)
- Employment verification (offer letter, employment contract)
- Bank statements
- Credit score
Once you have all the documentation, you can start the mortgage preapproval process with your lender.
How do I increase my chances of getting preapproved for a mortgage?
There are steps you can take to increase the likelihood of getting pre-approved for a mortgage. These tips may help you get the best interest rate possible and make homebuying easier.
Check your credit
Before you look for a mortgage, it’s a great idea to check your credit score and report. This step will offer you an idea of where you stand financially and help you identify any areas that need improvement.
Settle your credit cards
If you have any outstanding monthly debts on your credit cards, then it’s a good idea to try to pay them off before applying for a mortgage. This step will give you a better chance of being approved for a loan and getting a lower interest rate.
Save for a down payment
A down payment is the money you put toward purchasing your home. The more money you can put down, the lower your interest rate. Most lenders ask for a down payment of at least 5% of the home’s purchase price. If you can, then try to save even more for your down payment. A 20% down payment will help you avoid paying private mortgage insurance (PMI), and in some cases, you will get a lower interest rate.
Be aware of your debt-to-income ratio
Your debt-to-income ratio (DTI) is the amount of debt you have compared to your income. Lenders use this number to decide how much money you can afford to borrow.
How long does it take to get preapproved for a mortgage?
The mortgage pre-approval process can last from a few days to a few weeks. It depends on how quickly you can gather the required documentation and how responsive your lender is.
Once you have all your papers in order, the mortgage preapproval process typically follows this pattern:
- You submit your mortgage application to your lender.
- Your lender reviews your documentation and determines if you’re eligible for a loan.
- If you are, then they’ll send you a mortgage preapproval letter.
- You use this letter to start shopping for homes within your price range.
While a preapproval letter is not a guarantee that you’ll be approved for a loan, it’s still worth the effort.
Does getting preapproved impact your credit?
Applying for a mortgage preapproval usually results in a hard inquiry on your credit report. This inquiry can temporarily affect your credit score by a few points.
However, if you’re planning to buy a home soon, then the impact of a hard inquiry is typically insignificant because the investigation will stay on your report for only 12 months, and its impact on your score will lessen.
In addition, having a strong credit history can help offset the negative impact of a hard inquiry. If you have a good credit score and history, then the query is unlikely to affect your credit significantly.
How long does a mortgage pre-approval last?
A mortgage preapproval is typically good for 60 to 90 days. This time frame is different from a pre-qualification, which is only a loan estimate and not a firm offer of credit.
If you’re still shopping in the housing market after your preapproval expires, then you’ll need to get another one.
If you find a home before your preapproval expires, then you can usually still use it. Most sellers accept offers that are contingent on the buyer being approved for a loan. So, as long as you can get approved for a mortgage within the contingency period, you should be able to use your preapproval letter.
What are the benefits of a mortgage preapproval?
There are several benefits to getting preapproved for a mortgage:
- You will know your pre-approved loan amount (this informationcan help you avoid looking at homes out of your price range).
- You will have a stronger negotiating position with sellers (a seller is more likely to welcome an offer from a pre-approved buyer).
- You'll be able to move quickly when you find the right home (since you've already been through the underwriting process, your loan will likely be approved quickly).
As you can see, there are sound benefits to getting preapproved for a mortgage. If you’re planning to buy a home shortly, then it’s a good idea to get preapproved.
Get preapproved today
If you’re in the market for a new home, then it’s important to start the process by getting preapproved for a mortgage. This step will give you an idea of what you can afford and also speed up the process when you find your dream home.
CrossCountry Mortgage offers two great programs to help make the homebuying process easier: Lock Before You Look and FastTrack. For more information, contact us today.