What Is a Preapproval?
 

Are you ready to be viewed as a serious player in the home buying game? Preapproval is an indication you’re in it to win it. It shows sellers you’re actively working with a lender and have the financial means to purchase a home. You’re not a casual window shopper. You’re ready to knock on the door and make an offer. 

What does a mortgage preapproval letter mean?

If you’re following the traditional steps to buying a home, you may have been pre-qualified by a lender early on in the process. Meaning: you likely provided some preliminary financial details, the lender requested a soft credit check, and you were given a pre-qualification letter with a ballpark home price you could potentially afford.

Preapproval takes that estimate a step further. A lender will verify and assess your income, debt, assets, and credit, and determine an exact amount you’re eligible to borrow. Your preapproval letter will outline the details and be submitted with your offer, which can give you an edge over buyers that haven’t gone through as diligent of a process. 

A preapproval letter will include:

• Property sale price
• Loan amount you qualify for
• Potential interest rate
• Conditions that must be met to obtain final approval

It’s still not an official approval, but it’s as close as you can get short of applying for the loan. 

Does preapproval require a hard credit check?

Yes. By this stage, you want to show that you’re a serious homebuyer. Your lender will request a credit inquiry to examine your credit history as part of the process of providing an accurate preapproval.

Do mortgage preapprovals affect your credit score?

Hard inquiries, like those during mortgage preapproval, typically lower your credit score temporarily by five points or less. It shouldn't affect it significantly while you're planning to purchase a home. One or more pulls for a specific type of credit, such as a mortgage, tend to have less of an effect on your credit score than pulls from different sources.

A variety of pulls could imply to your lender that you've opened several lines of credit, which may not be viewed favorably when you're planning on buying a house.

How long does the preapproval process take?

Variables such as how much debt you have and whether your finances are complex may impact when you can expect to receive your preapproval letter. In some cases, it’s possible to get a preapproval within 24 hours or by the next business day.

How long is a preapproval good for?

Most preapprovals are valid for 60 to 90 days. The expiration is a safeguard for lenders because a loan’s terms are based on factors that can change over time, such as a borrower’s income and credit history. It can work out in your favor if you’ve worked to improve your credit score and can qualify for a lower interest rate.

Does it hurt to get preapproved for a mortgage by multiple lenders?

Hard inquiries can negatively impact your credit score, but time it right and you have nothing to worry about. Preapprovals from different lenders completed within a short time frame (think two weeks to a month) will only show up as one hard credit check. 

Can I put an offer on a house without preapproval?

Preapproval isn’t a requirement, but it can put you ahead of other buyers in a competitive market. It also allows you to act fast when you find the home of your dreams.

How far in advance should I get preapproved for a mortgage?

Aim to get your preapproval letter as you get close to making an offer on a home. That should give you enough time to compare mortgage rates to find what would work best for you and be ready to make an offer before your preapproval expires.

Ready? How to get a preapproval

If your home buying game is getting serious, it’s time to take it to the next level with a preapproval.

Some items you'll likely need to provide for mortgage preapproval:

• Names and social security numbers
• Current address
• Current employer details
• W-2 tax forms and 1099s
• Bank statements
• Debt records
• Down payment amount
• Desired amount to borrow with a mortgage