Pre-Approvals 101: The Top 10 First-Time Homebuyer Questions Answered
Mortgage pre-approval is important for one key reason: it shows you’re a serious buyer. Sellers don’t want to waste time going through the motions of accepting an offer and drawing up a contract, only to have it fall through later due to the buyer’s inability to secure financing.
When you’re pre-approved, there’s a higher likelihood you’re actually able to purchase the home without issue – more than if you’re only pre-qualified. Plus, it’s usually free and all of the effort required to obtain a pre-approval will make your actual mortgage approval much easier.
That being said, getting pre-approved isn’t always necessary – and it’s definitely not mandatory. It all depends on your lender and your market. Your agent is a great resource to help you identify whether or not you need a pre-approval to make offers.
Here are the top 10 questions first-time homebuyers have about mortgage pre-approvals:
#1: How does the mortgage pre-approval process work?
The first thing you’ll do to get pre-approved for a mortgage is complete a mortgage application. Depending on your lender, you may do this online, or in person at their office.
Within the mortgage application, you’ll have to submit your Social Security number, your W-2, your income and employment information, and you’ll have to consent to a credit check.
The lender will verify all of your information and confirm accuracy. At that point, they’ll determine how much you’re able to borrow based on your income and credit. They’ll issue you a pre-approval letter that states this information, and it’s usually valid for 90 days.
Once you receive this pre-approval letter (typically sent digitally), you’re officially pre-approved.
#2: What’s the difference between pre-approval and pre-qualification?
A pre-qualification is based on stated, unverified information. A pre-approval requires actual financial documentation so the lender can verify your information.
Getting pre-qualified for a mortgage is a step before getting pre-approved.
The pre-qualification process is more about figuring out how much you can afford. It is “back of the napkin” math – a quick way to figure out how much home you might be able to afford based on your stated income, assets, debts, and credit. While you’re telling the lender how much you make, your credit score, and how much you have saved for a down payment, the lender is not yet verifying all this information on their own.
They’re relying on you to report this information accurately.
Because of this, pre-qualification is a lot less useful to a seller – you’re not officially backed by a lender yet.
On the other hand, pre-approval is different because the lender has taken steps to confirm all the data you shared with them. It’s more accurate and official, and what verifies you as a serious buyer.
#3: Does a mortgage pre-approval hurt your credit score?
Pre-qualification typically involves a soft credit pull and does not show up on credit report, but a pre-approval does. This is because the lender runs your credit, and it counts as a hard inquiry. However, your score will usually only drop by a couple of points.
You’re only going to apply for pre-approval when you’re serious about getting a mortgage. Because of this, you shouldn’t worry too much about its impact on your score.
FYI - Multiple credit inquiries in the same 14-day stretch of time for one mortgage will only count as one collective inquiry, so shopping around in a short window won’t hurt your credit. It will be clear to lenders that you’re shopping for one home loan – not multiple.
#4: How far in advance should you get a mortgage pre-approval?
Don’t get pre-approved until right before you start to go see homes you want to buy in person. Since it’s only good for about 90 days, you want to make sure you’re definitely ready.
If you’re just starting to figure out your home buying budget, talk to a lender and they’ll help you get pre-qualified. But when it comes time to schedule a showing for (hopefully) your first home, make sure you prove you’re ready with a pre-approval letter in hand.
#5: How long does it take to get a mortgage pre-approval?
Getting pre-approved typically only takes a few days after you’ve submitted your application, and in some cases can happen same-day. The hardest part of the process is gathering the documents you need – and you’ll need quite a few. From pay stubs to W-2s, to tax returns, you’ll need to make sure the supporting documentation is all set for the lender to review.
Once the lender has your paperwork, they’ll run your credit, verify your information, and then get back to you within 1-2 business days. However, if you have a complex financial picture (e.g. you are self employed), it could take up to a week or more.
#6: How do you ask for a mortgage pre-approval extension?
Let’s say you’ve been pre-approved, but you haven’t found the house you were hoping for within the 90 days (or you’ve been repeatedly outbid).
You’re going to want to talk to your lender about a mortgage pre-approval renewal. Usually, mortgage pre-approvals are renewed, not extended.
In order to get your pre-approval letter renewed, your lender will have to check over your application again. You aren’t able to get it renewed based on the same information from three months ago.
For example, you’ll need to submit updated bank statements. If the tax deadline has passed, you’ll have to show new tax returns.
This can sometimes cause changes to your home buying budget. If your income has gone up and your debt has gone down, your budget may then expand. However, if mortgage rates have also gone up, your budget may shrink, since you’ll have to pay more every month for the same amount of debt.
#7: What should you do if your mortgage pre-approval expires?
Talk to your lender in advance of the expiration if you’re having difficulty finding a home. They’ll guide you through what the renewal process looks like from their end.
Try to submit all paperwork needed before the expiration, so you don’t have a large gap in between your valid pre-approval letters – just in case that perfect home comes on the market.
The good news? The lender will use all the documentation you provide for your pre-approval for your actual loan approval once you’ve had an offer accepted.
#8: Should you get more than one mortgage pre-approval letter?
A pre-approval does not mean you’re committed to that lender. You can get multiple pre-approvals from different mortgage lenders.
It’s smart to talk to at least two lenders and get a pre-approval offer from both. You’ll be able to compare and contrast fees and rates, and also see which one you like working with the most!
#9: Can your loan application fall through after a pre-approval?
Yes. When you get a pre-approval letter, that is a good sign, but it still doesn’t mean you’re guaranteed for a mortgage. That’s why it’s super important to stay on track with your finances, all the way up until your closing day.
#10: What if mortgage rates go up while I’m shopping for a home?
Your interest rate is not locked in until you sign a purchase agreement (i.e. after your offer is accepted). If it takes a few months after your pre-approval to find a home and rates have gone up, your projected monthly mortgage payment will have gone up (and the total amount you can borrow may have gone down).
Best thing to do: talk to your lender before you put in an offer and make sure the daily rate is in line with what you were projected to pay based on your pre-approval.