How Long Is Mortgage Pre-Approval Good For?
Mortgage pre-approval is a must for anyone in the market for a new home. According to Rocket Mortgage, pre-approval typically remains viable for 60 to 90 days, after which the length of time that has passed is often enough to warrant another round of credit inspection. Pre-approval can make the process of gaining mortgage funding much faster, alleviating much of the stress that's inherent to homebuying.
Mortgage pre-approval can make you a more attractive potential buyer, as well as give you the confidence required to put in an offer on a home that you really love. Knowing that your financial institution has already vetted you and provided an in-depth accounting of your likely interest rate and the amount of funding you can take advantage of is a powerful tool that streamlines real estate purchases substantially.
Buyers are able to take that additional step toward understanding their own budget for a new property, and real estate agents can confidently bring prospective buyers forward with vetted offers to the seller, knowing the chance of a deal falling through because of financing issues is limited to only the most extreme of circumstances.
Mortgage pre-approval offers peace of mind to everyone involved, but it also gives you, as a buyer, a clear window into your capacity for purchasing a home and a blueprint for improving your financial standing if the pre-approval offer falls short of your expectations or desires.
Mortgage pre-approval is crucial as you start the home search
Homebuyers can take advantage of a few key assets while browsing the real estate market. A mortgage pre-approval letter is a powerful indicator that you re both a serious buyer and will have the funding available when it comes time to close on the deal.
Another type of credit checking that can happen ahead of time is the pre-qualification option. Homebuyer notes that pre-qualification is a similar type of inquiry into your personal details and history, but unlike a pre-approval application, this type of investigation only goes surface deep and reveals what you are likely to get in a mortgage loan.
Mortgage pre-approval, meanwhile, is different in that it works as a veritable guarantee of funding up to a certain limit. A pre-approval letter is a commitment from a financial institution (such as your bank) that should you make an offer on a home, the lender will support your full, follow-up mortgage application.
Pre-approval, which is typically good for three months or 90 days (per Bank of America), allows you the freedom to explore the market, knowing that you can afford to buy any home that falls within your guaranteed loan range. This puts a certainty on the process of budgeting and searching for the perfect home, rather than estimating how much you can borrow and the resulting price window that you'll comb through.
Improving your credit score can influence a future pre-approval application
A mortgage pre-approval letter — which is good to use for 90 days in most cases, per Homebuyer — is drafted after applying for a check of your creditworthiness. Unlike the pre-qualification process, mortgage pre-approval involves a hard inquiry on your credit report (via Experian). This means your lender will take into account your application and your supplied documentation (like your tax reporting history, bank statements, and other essential information), plus your credit history report, in order to preemptively make a mortgage lending decision for you.
This process can give you a taste of what to expect from a lender, plus a blueprint for improving your borrowing potential. Spending the 90 days working to eviscerate existing debts can substantially change your debt-to-income ratio, opening up the possibility of better lending terms upon a reevaluation.
A pre-approval letter is the result of these checks, and it will indicate your financial status, the prospective interest rate you'll pay if you take out the loan, and, perhaps most importantly, the amount of money the lender will offer you. The pre-approval letter indicates the maximum you're being offered and can help guide your home search alongside a real estate professional that knows the local marketplace.
Rocket Mortgage notes that some real estate agents working with sellers will only provide a tour through the homes they represent after seeing a pre-approval letter. This helps everyone involved to avoid wasting time.
Increasing debts can negatively impact your ability to borrow, though
Alternatively, allowing the mortgage pre-approval window of (60 to) 90 days to apse can end up being a negative thing in the long run. A pre-approval letter involves a hard credit inquiry, meaning multiple inquiries in a row to support a number of new pre-approval applications can end up reducing your credit score rather than help you create a more favorable buyer's profile (via Experian).
You might want to refresh a pre-approval letter once, in an effort to improve your financial circumstances, but it's important to think twice before allowing the 90-day window to lapse a second time.
Likewise, it's important to move quickly when entering the property market because a slow approach can actually make finding the right home much harder. By elongating the search process, you turn yourself into something of a real estate voyeur. This is obviously a negative for sellers, but it can also skew your understanding of the market, leading to a feeling of underwhelmment when you do view properties within your budget's range.
The Mortgage Reports suggests viewing no more than three to five homes in a day, and often a search might include 10 to 15 homes total (not including online browsing). This equation leads to a generally speedy process of viewing homes that interest you and then making an offer on the one that stands out as your future abode.