Mortgage preapproval: What is it and how do you get one?
House-hunting and mortgage approval is much like the chicken or the egg scenario: What comes first? Can you put in an offer before the mortgage, or do you need to apply for a mortgage before putting an offer on the house? Both seem to depend on one another. Mortgage preapprovals help bridge this gap so you can house-hunt with confidence and submit an offer in good conscience.
What is mortgage preapproval?
A mortgage preapproval is a document from a lender stating their tentative willingness to lend a borrower a certain amount of money. The document is typically based on criteria provided by the borrower and is not always a guaranteed offer or letter or approval. The intention is so a buyer can let a seller know they are likely to obtain financing and provide their bid with merit. Sellers often require a preapproval letter before they accept an offer on a house.
Mortgage prequalification vs. preapproval vs. approval
The terms mortgage prequalification and mortgage preapproval are often used interchangeably. The biggest difference between them is what you need to provide, what each one tells you and how much weight they hold in the mortgage application process.
Mortgage prequalification provides an estimate for how much house you can afford. The number is based on information provided by the borrower and doesn’t go through an official verification process. More importantly, it isn’t an official qualification.
On the other hand, mortgage preapprovals formally verify the borrower’s financial information and provide real parameters for a loan. If the borrower applies while the approval is active and nothing major has changed with their finances, they are likely getting approved for the loan in the preapproval letter.
Mortgage approval means you’re officially authorized for a loan and guaranteed to receive the financing detailed to you after going through the official mortgage application process.
Why do you need mortgage loan preapproval?
While mortgage loan preapproval isn’t necessarily required, it could potentially be a smart step to take before putting in a bid on a home. Oftentimes, sellers require a buyer to provide a mortgage loan preapproval. It helps ensure that the buyer will likely obtain financing, and the seller doesn’t have to worry that the offer may fall through. Of course, in any real estate transaction there is risk. However, a preapproval letter helps assuage this feeling.
Lenders may not require a mortgage loan preapproval before a borrower officially applies for a loan. It may be helpful, though, for the borrower to get a better understanding of what type of loan they may qualify for before making any offers or decisions outside of their affordability range.
How to get preapproved for a home loan
The process for getting preapproved for a mortgage may depend on the lender, and most of them will have a preapproval or prequalification option on their website, along with directions on how to move through the process. If you have any questions, you can always contact a home lending advisor for assistance. Chase Bank does not offer mortgage prequalification. Any information described in this article may vary by lender.
It typically begins by telling the lender:
- A bit about yourself. Perhaps the most important piece of information you will provide will be your Social Security number so the lender can run a credit check. Your bank account’s status, along with information regarding any debts and assets, will also need to be provided.
- About your home loan needs. The lender will need to know how much you’re looking to borrow to purchase your home.
- Your finances. Informing the lender of your current employment status is a crucial part of the process. It could also be of potential benefit to be prepared to settle or challenge any financial discrepancies.
Can I get multiple mortgage preapprovals?
Yes, you can get multiple mortgage preapprovals. In fact, it’s often encouraged as a way for you to shop around for the best rate.
Can mortgage rate change after preapproval?
A mortgage rate may change after preapproval depending on:
- If there are any significant changes in your personal finances.
- There are changes in the economy that impact interest rates.
What do you need to get preapproved for a mortgage?
While mortgage preapprovals don’t necessarily require the same amount of documentation as a mortgage application, they typically ask for information about you, your finances and the house you’re looking to finance.
How long does mortgage preapproval take?
Depending on the lender and how in-depth the process is, mortgage preapproval can take anywhere from a few minutes to a few days. Some mortgage preapprovals will automatically return a number to the borrower depending on the information they’ve provided about themselves and their finances. Other preapproval processes may be in-depth and involve a credit check that could take up to a few days.
In summary
Mortgage preapprovals help borrowers understand what kind of home loan they can expect to qualify for. It’s helpful to get preapproved for a mortgage as you gear up to put an offer in on a home, as it’s often required by the seller. Getting multiple preapprovals may help you find the best rate. However, do note that preapprovals expire after a certain period and may not be identical to the loan you ultimately qualify for once approved.
Mortgage preapproval FAQs
1. What happens if my mortgage preapproval expires?
If your mortgage preapproval letter expires, you’ll need to reapply for preapproval once again. This may be done at the same or a different lender.
2. How far in advance should I get preapproved for a mortgage?
Preapproval letters are only valid for a certain amount of time. Depending on the lender, they can last around one to two months. Your mortgage preapproval letter should be obtained prior to submitting a bid but not too far out from when you plan on submitting one.
3. Is it worth getting preapproved for a mortgage?
Mortgage preapproval helps indicate that you are a serious buyer to a seller. It helps provide proof of your ability to finance your purchase and shows that you’ve gone through the motions of beginning to obtain financing for your home purchase.
4. Can I be denied a mortgage after being preapproved?
While mortgage preapproval may help indicate what type of mortgage you may be approved for, it does not 100% guarantee final approval. There are many factors that may impact what ultimately happens with your mortgage. For example, if the borrower waits too long their preapproval letter may expire, or if the borrower’s finances change or do not ultimately match what was provided to obtain the preapproval letter, the borrower may be denied.
5. Does getting preapproved for a mortgage hurt credit?
Some mortgage preapprovals may result in a hard credit inquiry and affect your credit score. However, the mortgage preapproval’s impact alone shouldn’t be anything that fundamentally changes the status of your credit.
