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Buying a home will be one of the biggest investments you’ll make in your lifetime. So before you start bidding on one, you might want to learn about the benefits of getting pre-approved for a mortgage loan.
In this blog, we’ll explain why you might want to get pre-approved for a mortgage, how to get pre-approved for a mortgage, and other common questions related to mortgage pre-approval.
We’ve also included a table of contents below so that you can easily jump to the topics that are of the most interest to you.
What Is Mortgage Pre-Approval?
Mortgage pre-approval is when you submit a preliminary mortgage application that provides documentation regarding your finances to a lender. The lender then reviews the information and decides how much of a loan they will offer you. They put this in the form of a letter, which you can then present to the seller of the home you’re interested in buying.
Pre-approval is nonbinding, so if you walk away from a particular mortgage, you won’t be penalized. But keep in mind that the process requires a hard inquiry into your credit, which can drop your score a few points. Therefore, if you’re applying for multiple mortgages, it’s a good idea to do them all in a short time frame.
Loan applications that occur within a 14-to-45-day window (depending on the situation) will register as a single inquiry and will not negatively affect your credit as much as multiple hard inquiries.
How to Get Pre-Approved for a Mortgage
To get pre-approved for a mortgage, you must submit an application that will require you to provide documentation that shows your financial history and your current financial situation. Therefore, it’s best to get organized ahead of time so that you don’t encounter any obstacles that could slow down the process. Most lenders will want to see:
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Credit History: this includes your credit score and credit reports
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Debt-to-Income Ratio (DTI): how much debt you pay every month to cover debt
payments like credit card bills, student loans, or auto loans; most lenders like to see 36% or less DTI
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Tax Forms: such as W-2s or 1099s to prove your income
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Pay Stubs: to prove your salary
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Investment Account Statements: such as retirement accounts, ownership of stocks or
bonds
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Valid, Government-Issued ID: to verify your identity
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Social Security Number: you don’t need to provide the actual card
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Proof of Address: such as a utility bill or current mortgage statement
Why Get Pre-Approved for a Mortgage?
There are many great reasons to get pre-approved for a mortgage. Here are some of the top benefits:
1. To Know Your Budget—So You Can Stick to It
If you have a pre-approval in hand when you are shopping for a home, you’ll know what you can afford and therefore won’t bid on a house that’s outside of your budget.
It’s easy to get swept away when you fall in love with a home, but if you’ve gotten pre-approval, you’ll be more likely to stick to your budget, stay within your means, and buy a home that you can truly afford.
2. To Be a Competitive Buyer
The home-buying market is competitive these days. When you make an offer on a home, you are likely going to be up against several other buyers. A mortgage pre-approval can give you a leg up by showing the seller that you are serious.
Sometimes, sellers even want to see pre-approvals before they accept your offer. This lets them know that not only can you afford the offer you’re making, but the closing process will move quickly since you’ve already gotten a pre-approved mortgage loan from a lender.
3. To Have Better Negotiating Power
If you can show a seller that you’re pre-approved for a mortgage, they may be more willing to negotiate with you. Pre-approval demonstrates that you’ve taken the necessary steps in advance, proving you’re a few steps ahead in the purchasing process. This preparation is often appealing to sellers.
4. To Close on the Home Faster
If you already have a pre-approval, you won’t have to worry as much about going through the whole mortgage shopping process once you’ve made an offer. You’ve already done this step, so you won’t have to wait for lenders to run your financial details and determine if you are approved!
This can expedite the process, getting you from “offer” to “owner” faster, which is attractive to sellers.
5. To Reduce Some Stress
Getting a mortgage is a major life decision because the amount and terms of your mortgage will shape your finances for a long time to come.
Finding the best deal can be a lengthy process so it’s smart to allow yourself enough time to shop around, talk to different lending institutions and loan officers, and keep track of the pros and cons of various mortgages.
If you take your time shopping, you’ll more likely end up with a better deal and will be less likely to need to refinance shortly after moving into your new home.
Pre-approvals last for 60-90 days, depending on the lender. So, before you even begin house hunting, you can complete this process in advance, which will eliminate the stress of scrambling for mortgage approval after you’ve found your dream home.
When to Get Pre-Approved for a Home Loan
The ideal time to get pre-approved for a home loan is before you start browsing online listings. Pre-approval helps you understand your budget, so you can focus on homes within your means and avoid falling for a property that’s beyond your financial reach.
Comparing Mortgages
Another benefit of pre-approval is having time to compare different mortgages to find your optimal fit. One way to do this is by keeping track of the features of various mortgages and then calculating an estimated monthly payment.
You can use our Mortgage Estimation Calculator for an estimated monthly mortgage payment and see how much home you can afford with our Mortgage Affordability Calculator.
Some Frequently Asked Questions (FAQs)
How long does it take to get pre-approved for a mortgage?
This varies by lender, but it can take several days or more to get mortgage pre-approval. However, you can speed up the process by having all of the required documentation ready when you apply.
How long is a mortgage pre-approval good for?
Your pre-approval letter will last 60-90 days, depending on the lender.
How to increase the mortgage pre-approval amount?
To increase the pre-approved amount of your mortgage, you’d have to lower your debt, increase your income, improve your credit—or possibly a combination of these factors.
What happens if my mortgage pre-approval expires?
You’ll have to apply again, which would include another credit inquiry and submitting updated paperwork.
Do mortgage pre-approvals affect your credit score?
Yes, because pre-approvals require hard inquiries into your credit history, which will temporarily reduce your credit score.
Can I get denied a mortgage after being preapproved?
Yes, but it’s usually because of a negative change in the buyer’s financial circumstance, like losing a job or an increase in debt.
Can I get pre-approved for a mortgage with bad credit?
It’s hard to get pre-approved for a mortgage if you have very bad credit since most lenders require a minimum credit score of 620. However, FHA loans, which are backed by the federal government, are more lenient and offer loans with just a 3.5% down payment and 580 credit score.
How long does mortgage approval take after pre-approval?
Getting pre-approval doesn’t mean that you’re automatically approved for the loan. Once you find the house you want to purchase, your lender will need to review and approve certain property details like the appraisal and condition of the home, as well as check that there aren’t any liens on the property.
Depending on the lender, the review process could take another 1 to 2 weeks.
The Listerhill Difference
At Listerhill, our mission is to help our members reach their financial goals so they can build a secure future for their families. To that end, we offer competitive rates and an easy mortgage pre-approval process to make homeownership a reality, instead of just a dream.
Click the button below to find out more about mortgage pre-approval—the Listerhill way.
Check out our Competitive Rates and Easy Pre-Approval Process
