Having a mortgage pre-approval from a reliable lender not only streamlines your home search process, but it can also speed up your loan approval and closing process.
Mortgage Pre-Approval
introduction to mortgage pre-approval
A mortgage loan pre-approval is a crucial step in the homebuying process because it gives you — the potential homebuyer — an idea of how much you can afford to spend on a home. Once you've been pre-approved, you can go house hunting with confidence, knowing the exact purchase price you can afford, and the range of mortgage rates and mortgage programs available.
A pre-approved mortgage is a written guarantee from a lender that confirms the amount of money you can borrow and the terms of the loan, based on your current financial situation.
The Importance of Getting a Pre-Approved Mortgage
Competitive Advantages of Having a Pre-Approval
Stand out from other homebuyers by submitting a strong offer backed by a reputable lender.
How to Get Pre-Approved for a Mortgage
Putting in the effort upfront will save you time and potentially money, as you embark on the homebuying process.
The Difference Between Pre-Approval and Mortgage Pre-Qualification
While both involve an evaluation of your finances to determine how much you can borrow, there are important differences between pre-approval and pre-qualification.
The Difference Between Pre-Approval and Final Loan Commitment
While a pre-approval is a smart preliminary step in the homebuying process, a final loan commitment comes toward the end of the journey.
Pre-Approval FAQs
Understand the details of the pre-approval process, so you can be prepared for your home search.
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The Importance of Getting a Pre-approved Mortgage
A mortgage loan pre-approval not only helps you determine your budget, but also positions you as a serious and qualified buyer in the eyes of home sellers.
Here are some key benefits of getting pre-approved:
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Competitive Advantages of Having a Pre-approval
Pre-approval for a mortgage not only helps you set a budget and establish a price range, but it also proves to sellers that you are a stronger candidate. Your financing is less likely to fall through because you've already been working with a reputable lender.
In competitive markets where multiple buyers may be vying for the same property, having a pre-approval can give you an edge over other buyers. Sellers are often more inclined to choose a buyer who has a pre-approval, because it shows that they are serious about purchasing the home and have already taken steps to secure financing.
Overall, it’s an important step in the homebuying process that can increase your chances of getting your dream home while also making your offer more attractive to sellers.
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how to Get Pre-approved for a Mortgage
A lender will evaluate your creditworthiness and financial position based on a number of factors before issuing a pre-approval letter. To start, you’ll need to complete the mortgage application.
Then, your lender will ask for documentation to get started. Some items they may need include:
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Pay stubs
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Bank statements
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Federal personal income tax returns
They may also run your credit report to determine which loan programs you may qualify for.
Check out a full list of documentation that may be needed, so you can be prepared for your mortgage pre-approval process. It’s important to ensure that all required documents are complete, accurate, and up to date.
Next comes the lender evaluation process. With all of your documents in hand, the lender will review your credit score, debt-to-income ratio, employment history, and other relevant factors. Based on the evaluation, your lender will provide you with a mortgage loan pre-approval letter that outlines the loan amount and terms you're eligible for.
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The Difference Between Mortgage Pre-approval and Mortgage
Pre-qualification
Pre-qualification
When it comes to purchasing a home, there are two terms that are often used interchangeably: mortgage pre-approval and pre-qualification. While both terms involve an evaluation of your finances to determine how much you can borrow, there are important differences between the two.
Pre-qualification is an early estimate of what you may be able to borrow based on self-reported financial information and a soft credit check. It’s a way for potential homebuyers to get an idea of their purchasing power before beginning the house-hunting process.
On the other hand, mortgage pre-approval involves a deeper dive into your finances. This is a more thorough process that allows lenders to determine whether you are a good candidate for a mortgage loan.
It's important to note that pre-qualification is not a guarantee for a mortgage loan. Pre-approval, on the other hand, is a stronger document from the lender that you are likely to obtain final approval with a mortgage loan commitment.
To take it one step further, consider our Platinum Credit Approval process. This includes a full credit underwrite upfront, allowing you to present your strongest offer possible.
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The Difference Between Mortgage Pre-approval and final loan commitment
While pre-approval is a preliminary step in the home loan process that gives you an idea of how much you can borrow, final loan commitment is the last step that confirms the lender will provide you with the money to buy a home.
Final loan approval involves a more detailed analysis of the information in your mortgage application and ensures that the lender is comfortable with the risk involved. During final loan approval, the lender will:
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Make sure the mortgage application contains accurate information
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Review the home appraisal report to ensure the property meets their standards
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Verify the title report to ensure there are no liens or title issues
Bottom Line
A pre-approval indicates that you are most likely eligible and ready to obtain a mortgage, while the final loan approval or loan commitment confirms it.
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Pre-approval FAQs
To help you get started with your pre-approval process, let’s cover a few pre-approval FAQs — from the factors that affect a loan pre-approval to the time it takes to receive a decision from your lender.
What factors affect a loan pre-approval?
A pre-approval is an essential step in the homebuying process that can help you determine the price range of homes you can afford. However, numerous factors can affect your pre-approval, and it's crucial to know all of them before you start the application process. A few of the most critical factors for a mortgage pre-approval include: your credit score and credit history; your debt-to-income (DTI) ratio; and your employment history and income.
Do mortgage pre-approvals affect your credit?
Many potential homebuyers are concerned about getting pre-approvals and how they might impact their credit. The truth is: pre-approvals can affect your credit, but there are steps you can take to minimize any negative effects.
First, it's important to understand the difference between hard and soft credit inquiries. Soft inquiries occur when a lender or creditor checks your credit report for informational purposes, such as when you check your own credit or when a company pre-approves you for a credit card. Soft inquiries do not impact your score.
On the other hand, hard inquiries occur when a lender or creditor checks your credit report because of your credit application. This can include applying for a mortgage loan pre-approval, credit card, car loan, or any other type of loan. Hard inquiries typically do impact your score, although the effect is usually small and temporary.
According to the Fair Isaac Corporation (FICO), credit inquiries generally have a “small impact” on your overall credit score. In addition, credit scoring bureaus typically acknowledge what is known as “rate-shopping,” which occurs when you are looking for a mortgage, auto loan, or student loan. If you are in the process of searching for the right home loan, FICO advises doing your rate-shopping within a defined period such as 30 days — to minimize any significant impact on your overall credit score.
How long does it take to get a pre-approval letter?
Getting a mortgage loan pre-approval letter varies by the mortgage lender and can depend on a number of factors – but, typically, it takes anywhere from several hours to a few business days to get a pre-approval letter.
Your credit score and debt-to-income (DTI) ratio can also affect how long it takes to get a pre-approval letter. If you have a good score and a low DTI, you may be able to get a pre-approval faster. However, if you have a poor score or a high DTI, the lender may need more time to review your application.
To ensure a smooth process, it's important to gather all the necessary documentation and be prepared to answer any questions the lender may have.
How long are loan pre-approvals good for?
Typically, a mortgage pre-approval letter is valid for around 90 days. However, the exact period of validity can vary by lender and may be affected by factors such as changes to credit, income, or residence. Other factors that may fluctuate are mortgage interest rates, proposed loan terms, and loan programs. It's important to remember that the pre-approval is not a guarantee of a loan and the lender may change its offer or terms based on these factors.
Using an expired pre-approval can have consequences for homebuyers. If the pre-approval has expired, the lender may no longer honor the terms or offer a loan at all, leaving the homebuyer at a disadvantage in a competitive market. Because of this, it's crucial for homebuyers to keep track of the expiration date of their pre-approval and act accordingly.
In case of an expired pre-approval, the homebuyer still has plenty of options. It's possible to renew a pre-approval online or in person by contacting the lender.
In accordance with federal regulations, consumers are not required to provide verifying documents until they have submitted an application, received a Loan Estimate Disclosure, and stated their intent to proceed with the loan transaction.
