When To Apply For A Pre-Approval Mortgage

Getting pre-approved for a mortgage at the right time is crucial to preserving your credit score and avoiding unnecessary costs. It is recommended to get pre-qualified first to get an idea of what you would qualify for and to help you plan for your future purchase. This can be done online, in person, or over the phone in just a few minutes. Then, you can get pre-approved when you are actually looking to buy. This process is more in-depth and requires more documentation, such as bank statements and pay stubs, and a hard credit check. It is important to note that mortgage pre-approval letters are only valid for a limited time, typically 90 days, so it is not advisable to get pre-approved too early in the house-hunting process.

Pre-qualification vs pre-approval

When it comes to buying a home, it is important to understand the difference between pre-qualification and pre-approval. Both are types of mortgage approvals that refer to steps that lenders take to verify that a client can afford a mortgage. However, they differ in terms of the level of verification, the information required, and the weight carried by the approval.

Pre-qualification is an early step in the homebuying journey, where a lender provides an estimate of the loan amount a buyer might be able to borrow based on basic financial information provided by the buyer, such as income and expected down payment. It can be done quickly and conveniently online, in person, or over the phone, and the results are typically available within an hour. Pre-qualification is a less involved process with fewer verification steps, and it does not require a hard pull on your credit score. It is useful for buyers who want a preliminary review of their financial standing and for narrowing down lenders. It is also an opportunity to learn about different mortgage options and work with lenders to identify the right fit.

On the other hand, pre-approval is a more specific estimate of the loan amount a buyer could borrow and requires more detailed documentation, such as W2 forms and verification of income and assets. The application process for pre-approval takes longer, and buyers typically receive their pre-approval letter within 10 business days after providing all the requested information. Pre-approval is as close as a buyer can get to confirming their creditworthiness without having a purchase contract in place. It shows sellers that the buyer is serious and financially capable of securing a mortgage, increasing the likelihood of their offer being selected, especially in a competitive market. While pre-approval is not a guarantee of a loan, it is the closest step to confirming a buyer's creditworthiness.

In summary, pre-qualification is a preliminary step to get an estimate of the loan amount and learn about different mortgage options, while pre-approval is a more detailed verification process that provides a more accurate estimate of the loan amount and demonstrates to sellers that the buyer is financially capable and serious about the purchase. Pre-qualification is less involved and can be completed quickly, while pre-approval requires more time and documentation.

When to apply for pre-approval

The best time to apply for pre-approval for a mortgage is when you are ready to actively search for a home. It is recommended to get pre-approved before you start looking for a real estate agent or viewing homes to buy. This will help you save time, money, and stress and make the home-buying process smoother and more successful.

Pre-approval can be extremely valuable when it comes time to make an offer on a house, especially in a competitive market. It shows sellers that you are a serious buyer and can secure a mortgage, increasing your chances of having your offer selected. It is also a good idea to get pre-approved to know your buying power. By doing so, you will know how much you can borrow based on your financial situation, and it will help you narrow your home search to properties that fit your budget.

However, it is important to note that pre-approval letters are only valid for a limited time, typically 90 to 120 days. Getting pre-approved too early in the house-hunting process can be wasteful as you may incur unnecessary expenses if your pre-approval letter expires and you have to reapply. Therefore, it is best to start the pre-approval process less than four months before buying a house. This will give you enough time to explore different neighbourhoods and view multiple properties without the risk of your pre-approval letter expiring.

Additionally, it is worth considering getting pre-qualified before seeking pre-approval. Pre-qualification is an early step in the homebuying journey and can be done quickly and conveniently online. It will give you an estimate of what you might be able to borrow and is a good way to learn about different mortgage options. Once you are pre-qualified and ready to actively search for a home, you can then proceed with the pre-approval process.

What to expect during the pre-approval process

The pre-approval process for a mortgage is a more involved process that is best suited to borrowers who are ready and motivated to buy. Here's what to expect during the pre-approval process:

Pre-Approval Process

The pre-approval process for a mortgage typically involves providing detailed information about your financial situation to a lender. This includes details such as your employment, income, debt, and financial accounts, as well as your assets and credit score. The lender will use this information to determine how much you can borrow for your mortgage and what kind of mortgage you may be eligible to receive. They will also perform a credit check, which can result in a small drop in your credit score.

Pre-Approval Letter

Once the lender has reviewed your financial information and performed the credit check, they will provide you with a pre-approval letter. This letter is an offer to lend you a specific amount of money for your mortgage and is typically valid for 60 to 90 days. It's important to note that the pre-approval letter is not a commitment to lend, but it does give you a competitive edge when making an offer on a home.

Timeframe

The timeframe for the pre-approval process can vary depending on your circumstances. If you have all the necessary documentation and a straightforward financial situation, it may only take a few days to receive your pre-approval letter. However, if you are self-employed, have a limited credit history, or have other extenuating circumstances, the process may take longer, up to two weeks or more.

Costs

It's important to be aware that mortgage pre-approval applications can come with fees. These fees can range from several hundred dollars, and you may need to pay another fee if your pre-approval letter expires and you need to reapply.

Pre-Qualification

Before seeking pre-approval, you may consider getting pre-qualified. This is a less rigorous process that involves providing basic financial information to a lender, such as your income and expected down payment. Pre-qualification can give you an early estimate of what you might be able to borrow and can be completed quickly, often online or over the phone. It's a good way to get an idea of your budget and the different mortgage options available to you.

How long does pre-approval take?

The time it takes to get pre-approved for a mortgage varies depending on the lender and the borrower's financial situation. Some lenders offer a quick pre-qualification process that can be done online, with results available within an hour. This process does not require a hard pull on your credit score. However, pre-approval usually takes longer and requires more detailed information.

For mortgage pre-approval, you will need to complete a mortgage application, and the lender will verify the information provided and perform a credit check. This process can take up to 10 business days or more, depending on the lender and the complexity of your financial situation. It is recommended to get pre-qualified first to understand your potential borrowing power and then work towards pre-approval when you are actively looking to buy. This way, you can avoid multiple credit checks impacting your score.

Pre-approval is a more specific estimate of how much you can borrow and demonstrates to sellers that you are a serious buyer. It is a smart step to take when you are ready to make an offer on a home, especially in a competitive market. The pre-approval letter is typically valid for 90 days, after which you may need to renew it if you have not finalized a purchase.

It is worth noting that every lender is different and will offer slightly different rates, closing credit amounts, and first-time buyer programs. Therefore, it is advisable to speak to multiple lenders to understand their specific requirements and the timeframe for their pre-approval process.

Pros and cons of pre-approval

Although there is no definitive answer to how far in advance one should apply for a mortgage preapproval, it is recommended to get pre-qualified first to get an idea of what you would qualify for. This can be done online, in person, or over the phone in just a few minutes with basic information like your income and expected down payment. You can then get preapproved in a year or so when you're actually looking to buy.

Now, let's discuss the pros and cons of pre-approval:

Pros of Pre-Approval:

• Shows sellers you're a serious buyer: A pre-approval letter indicates to sellers that you can secure a mortgage, making it more likely that your offer will be accepted.
• Competitive advantage: In a competitive market, a pre-approval can make your offer more attractive compared to buyers who haven't been pre-approved.
• Faster closing process: Since your financial information is already with the lender, pre-approval can speed up the closing process.
• More flexibility: Pre-approval offers you more flexibility in negotiating terms and pricing compared to buyers who haven't been pre-approved.
• Understanding your budget: Pre-approval helps you understand your borrowing capacity and budget for the home's purchase price and down payment.
• Identify the right mortgage: Pre-approval allows you to learn about different mortgage options and work with your lender to identify the best fit for your needs.

Cons of Pre-Approval:

• Impact on credit score: A hard pull is conducted for pre-approval, which can impact your credit score, although the effect is usually minimal if done within a short time frame.
• Time and effort: The pre-approval process requires more time and information than pre-qualification, and you may need to provide additional documentation.
• Not a guarantee: A pre-approval letter is not a commitment from the lender to provide the loan. It is subject to further verification and changes in rates and terms.
• Potential for over-borrowing: Pre-approval may qualify you to borrow more money than you are comfortable spending, so it's important to stick to your budget.

Frequently asked questions