Get Mortgage Approval Fast: What You Need To Know

Getting approved for a mortgage can be tough, with lenders examining every aspect of your finances, including your income and debts. The time it takes to get approved for a mortgage can depend on several factors, including the type of mortgage and the lender's requirements. Some lenders offer faster pre-approval processes, which can be helpful when you're ready to make an offer on a house. Pre-approval usually takes longer than pre-qualification since it requires more detailed financial information and a hard credit check.

Prequalification vs. Preapproval

When applying for a mortgage, you may be asked to get prequalified or preapproved. While the terms are sometimes used interchangeably, they have distinct meanings and purposes. Prequalification and preapproval are both a way for a lender to help you and a seller estimate what you can afford. However, they can take different amounts of time and require different levels of information.

Prequalification is an early step in your homebuying journey. It is a lender's estimate of what you could potentially borrow. It is a less involved step, with fewer verification steps, and can be completed easily and conveniently online, in person, or over the phone in just a few minutes with basic information like your income and expected down payment. Prequalification is also an opportunity to learn about different mortgage options and work with your lender to identify the right fit for your needs and goals. After prequalification, you’ll usually receive a “prequalification letter” that you can show to an agent or seller as proof of what you may be able to afford.

Preapproval, on the other hand, is a more specific estimate of what you could borrow from your lender. It is a more official step that requires the lender to verify your financial information and credit history. You will complete a mortgage application and the lender will perform a credit check. Documents required for preapproval may include pay stubs, tax returns, and your Social Security card. Preapproval can be extremely valuable when it comes time to make an offer on a house, especially in a competitive market. If you’re preapproved, you’ll receive a preapproval letter, which is an offer (but not a commitment) to lend you a specific amount, good for 90 days.

While prequalification and preapproval are types of mortgage approvals, it is important to note that neither is a guarantee that you’ll close the loan. After you find a house and make an offer, the home will still need to be appraised by a third party before you can receive final loan approval and buy the home.

The role of credit scores

Credit scores are pivotal in the mortgage approval process. They are a numerical representation of your ability to pay back a debt obligation. The higher your credit score, the more likely you are to get a mortgage with better terms and lower interest rates. An excellent credit score (740 and above) puts you in the top tier of borrowers, and you can expect to receive the best mortgage terms without needing to shop around.

Lenders will always conduct a credit check and closely examine your credit score when evaluating your mortgage application. They will also require proof of employment status, income information, and other financial information such as bank statements. Your income, employment history, debt-to-income ratio, down payment amount, loan type, and property type are all factors that are considered alongside your credit score in the mortgage approval process.

While credit scores are important, they are not the sole factor in determining your eligibility for a mortgage. Borrowers with lower credit scores may still be eligible if they have sufficient income and can make a sizable down payment. Conversely, a borrower with a high credit score may be denied a mortgage if their income is too low or their debt-to-income ratio is too high. Therefore, it is important to focus on improving your overall financial profile, including building up your savings and increasing your income, rather than solely on your credit score.

You can improve your credit score by not maxing out your credit cards, keeping your spending low, and paying back debts regularly. It is also important to be registered on the electoral roll, keep a good mix of revolving and instalment debt, and maintain a good debt-to-income ratio. By taking action on your credit score early on, you can increase your chances of mortgage approval and better mortgage rates.

How lenders assess your finances

The mortgage approval process can be intimidating, especially for first-time homebuyers. While standards may differ from lender to lender, there are four core components, often referred to as the four C's—capacity, capital, collateral, and credit—that lenders will evaluate to determine whether they will approve a loan.

Lenders will assess your financial situation to ensure it aligns with the loan amount and terms requested. They will look at your income, employment history, savings, and monthly debt payments, as well as other financial obligations, to ensure you have the means to take on a mortgage. They will also verify your income by reviewing your federal income tax returns, W-2s, and current pay stubs. Lenders prefer borrowers with stable, predictable income and will consider income from any type of work, as well as additional income from investments.

Lenders will also consider your cash reserves, which include money saved or invested that can be easily converted to cash. This demonstrates your ability to manage your finances and pay the mortgage in addition to your income. Acceptable sources of capital include gifts from family members, down payment or closing cost assistance programs, grants or matching funds programs, and sweat equity.

Your credit score and history are also important factors in the mortgage approval process. Lenders will review your payment history on credit cards, loans, lines of credit, and other financial obligations to assess your track record of responsible, on-time payments. They will also consider your credit utilization ratio, which indicates how much of your available credit you are currently using. A high credit utilization ratio may indicate that you are overleveraged and pose a higher risk.

Finally, it is important to note that lenders may re-evaluate some aspects of your financial situation right before closing to ensure nothing significant has changed since the initial approval. This includes confirming that there have been no new large purchases or lines of credit opened, as these can affect your credit score and debt-to-income ratio, potentially impacting your loan approval and interest rate.

The importance of pre-approval

The home-buying process can be complex, and one of the most crucial steps is obtaining a mortgage pre-approval. Here are some reasons why pre-approval is important:

Understanding Your Budget

Mortgage pre-approval involves a lender reviewing your financial situation, including your credit score, income, and debt, to determine how much you can borrow. This gives you a clear understanding of your budget and helps you focus on homes within your price range. You may qualify to borrow more money than you are comfortable spending, so it's important to establish a budget that works for you.

Strengthening Your Offer

Pre-approval shows sellers that you are a serious and qualified buyer. In a competitive market, it gives you an edge over other potential buyers who have not been pre-approved. Sellers are more likely to accept your offer as it assures them that the deal is less likely to fall through due to lack of financing.

Speeding Up the Process

With pre-approval, you can act quickly when you find a home that meets your needs. It also allows real estate agents to work with you more efficiently, knowing that you are looking for homes within the right price range. You may even get a faster loan closing compared to buyers who are not pre-approved.

Informed Decision-Making

Pre-approval provides you with the details of your financing before you start viewing homes. This includes knowing how much you can afford, the terms of your loan, and the amount of down payment required. This information empowers you to make informed decisions and negotiate with confidence.

Competitive Advantage

In today's seller's market, inventory is low, and buyers need to be competitive. Pre-approval gives you a step ahead of other buyers by demonstrating to sellers that you are prepared and financially capable. It strengthens your position and increases the likelihood of your offer being accepted.

In summary, mortgage pre-approval is a critical step in the home-buying process. It provides clarity, strengthens your position, speeds up the process, and makes you a more informed and attractive buyer. By understanding your financial situation and securing pre-approval, you can confidently navigate the journey towards owning your dream home.

Different types of mortgages

There are several types of mortgages available, each with its own benefits and features. Here are the most common types:

Conventional Loans

The most common type of mortgage, conventional loans are available from a wide variety of lenders and can be conforming or non-conforming. Conforming loans meet a set of Federal Housing Finance Agency (FHFA) standards, including guidelines around credit, debt, and loan size, and can be purchased by government-sponsored enterprises Fannie Mae and Freddie Mac. Non-conforming loans, such as jumbo loans, do not meet these standards and are therefore riskier for lenders. Conventional loans typically require a minimum credit score of 620 and a debt-to-income (DTI) ratio of up to 50%.

Government-Backed Loans

These loans are insured by federal agencies like the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA). FHA loans are available to borrowers with lower credit scores and minimal cash for a down payment, but they require mortgage insurance premiums, which add to the overall cost. VA loans are available to eligible members of the military and their spouses, while USDA loans are for low- and moderate-income buyers in designated rural areas.

Fixed-Rate Mortgages

Fixed-rate mortgages offer a predictable, set monthly payment for the duration of the loan, making them attractive to borrowers who value certainty in their loan costs. The interest rate and monthly principal and interest payments remain the same, although the total monthly payment can still change due to fluctuations in property taxes, insurance rates, or mortgage insurance.

Adjustable-Rate Mortgages (ARMs)

With adjustable-rate mortgages, the interest rate fluctuates over the life of the loan based on the prevailing interest rates. ARMs typically have two periods: an introductory period with a fixed interest rate, followed by a second period where the rate regularly adjusts based on market changes. This type of mortgage may be suitable for borrowers who plan to move or refinance before the rate adjustment or who are comfortable with potentially higher rates.

Other Types

In addition to the above, there are other specialised types of mortgages, such as construction loans for building a new home, interest-only mortgages where only the interest is paid during the initial years, and reverse mortgages for homeowners aged 62 or older to convert their home equity into cash.

Frequently asked questions