When the lender issues a mortgage preapproval letter, the document infers its validity for a specific period. Most creditors provide approvals in 90 days, but each financer establishes its deadlines and grants letters with 30 and 60-day time limits.
The mortgage preapproval letter determines the amount of money you are allowed to borrow for the home purchase process. It usually indicates the type of loan you are eligible for and the mortgage rate that the financier will charge when you complete your mortgage application.
Furthermore, a mortgage preapproval letter provides a significant advantage in the competitive real estate market. When a seller evaluates similar proposals for a home, a preapproved bidder can have the edge over others based on their financial security.
Since preapproval has a relatively short duration, it’s wise to plan your preapproval letters carefully so you can use them properly. It is crucial to know the validity of the preapproval letter before applying for a mortgage. Here’s an outline of how to request preapprovals and how to use them effectively.
How long does it take to get a mortgage preapproval letter for a mortgage?
A mortgage preapproval letter typically takes three months, so there is no need to receive it until you are prepared to bid on your home. At this point, you must have researched the real estate market that intrigues you. Also, the professional experts that help you with the home purchase process (attorney experts and property agents in house sales). After that, take steps to fix your credit history and start seeking home mortgages.
When you are ready to initiate bidding, you will submit your preapproval request to a creditor of your choice. You might be required to pay a commission of several hundred dollars. However, you can get it back as a loan if you obtain a mortgage from that lender. After you provide all the necessary documents, the preliminary decision can take approximately one or two days. When you receive the mortgage preapproval letter, remember to attach its copy with every offer letter you send.
Getting mortgage preapproval letter for a home loan
Preapproval is essentially the same process as applying for a home loan. This means that the lender will check your credit records, assets, income, tax returns, debts, and work history. Lending institutions often ask you to provide identification records and documents such as tax returns, payment receipts, and bank statements. Also, they will require your permission to review your credit records with one or more of the three credit agencies (Equifax, TransUnion, and Experian) and request a credit rating based on these credit reports.
A mortgage preapproval letter is considerably different from a similar mortgage prequalification process. For prequalification, it is necessary to answer some questions on the lender’s website without providing any supporting documents required for a mortgage preapproval letter. Typically, you are required to provide proof of your income, the amount you intend to spend on a down payment, and your social security number. Therefore, the lender will check your credit score by reviewing all these details. More so, you might be asked about the monthly bills and other expenses.
Prequalification is the best way to compare various mortgage creditors, and it helps in selecting potential mortgage lenders.
Does the preapproval of a mortgage affect your credit?
The mortgage preapproval typically has little impact on your credit rating. The credit check required for the preapproval process often leads to a hard inquiry that will appear on your credit report. Hard inquiries can cause a slight drop in your FICO ratings and Vantage scores, generally by only a few points. If you start repaying your bills, the decline in scores related to complex investigations usually lasts for a few months. These inquiries will not be factored into your credit ratings after one year. Therefore, it will disappear entirely from your credit report after two years.
Mortgage preapproval letter can provide you a strategic advantage over borrowers struggling with you in a tight housing market. Since preapproval is relatively short-term, it’s ideal to obtain one only when you prepare to close the deal on a home purchase.