Even though the real estate market is showing signs of cooling, it still remains highly competitive for homebuyers in a lot of major metropolitan areas. Homebuyers in markets like Denver, Dallas, Portland, and Boise are reporting that properties are still selling within days of being listed, and in some cases for considerably more than the asking price.
So what can you do if you’re a serious homebuyer trying to stay competitive in the market? Getting pre-approved for a mortgage could potentially give you a competitive advantage.
Read on to learn more about the pre-approval process.
Mortgage loan pre-approval: What is it?
Preapproval is one of the best ways to confirm your creditworthiness for a potential mortgage loan. By completing a mortgage application and providing verification of the information you provide, lenders can perform a credit check to give you an idea of what interest rate you may qualify for and how much money you're eligible to borrow.
Preapproval letters are offers (but not commitments) to lend you a specific amount for a set period of time, usually 90 days. This gives you and the lender peace of mind knowing that you are creditworthy and have the ability to repay the loan.
This can be helpful in the home-buying process because it gives you an estimate of what you can afford and provides leverage with sellers since they'll know you're a serious buyer. If you want to find out how much you can afford before beginning a pre-approval application, you can utilize our mortgage calculators here.
The benefits of mortgage loan pre-approval
There are several benefits to getting mortgage loan pre-approval, including:
1. You'll have a better idea of how much house you can afford.
2. It shows sellers that you're a serious buyer.
3. It may give you negotiating power with sellers.
4. It can simplify the mortgage process.
5. It may save you time and money in the long run.
How to get pre-approved for a mortgage loan
There are a few steps you'll need to take to get pre-approved for a mortgage loan, including:
Gathering financial information - You'll need to provide documentation of your income, debts, and assets.
Applying for a loan - This can be done online, over the phone, or in-person at a bank or lending institution.
Undergoing a credit check - The lender will pull your credit history to assess your risk level.
Receiving your pre-approval letter - Once you're approved, the lender will send you a letter stating the amount of the loan you've been approved for.
FAQs about mortgage loan pre-approval
A lot of people have a lot of questions about pre-approval, so we've answered some of the more common inquiries.
What information do I need to provide to get pre-approved for a mortgage?
To get pre-approved for a mortgage, you'll need to provide the lender with documentation of your income, debts, and assets. This can be done online, over the phone, or in person at a bank or lending institution.
The lender will also pull your credit history to assess your risk level. Once you're approved, the lender will send you a letter stating the amount of the loan you've been approved for.
How long does it take to get pre-approved for a mortgage?
The answer to this question will vary depending on the lender you use, but borrowers are reporting wait times of anywhere between one business day, and a week for their pre-approval.
Will getting pre-approved hurt my credit score?
Your initial inquiry in the pre-approval process will result in what’s referred to as a “soft pull” of your credit history, and this will not impact your credit score.
However, it should be noted that the initial inquiry should be considered more as “pre-qualification” rather than “pre-approval”. If you read the fine print, you won’t be considered pre-approved until you actually apply for the line of credit—which is the second step after receiving your offer.
Once you apply for the line of credit, a “hard pull” of your credit history will be performed, and that will impact your credit score.
What if I'm not able to get pre-approved for a mortgage?
If you're not able to get pre-approved for a mortgage, it may be because of your credit history or because you don't have enough documentation of your income, debts, and assets.
If this is the case, you can work on improving your credit score or gathering more documentation before reapplying for pre-approval.
How long does mortgage loan pre-approval last?
Mortgage loan pre-approval lasts for a predetermined amount of time, typically 90 days.
This is the time frame during which the lender will guarantee the loan terms. After this period, you'll need to reapply for pre-approval if you still want to pursue the loan.
A final word on mortgage pre-approval
If you’re a serious homebuyer looking for a competitive advantage in your market, getting pre-approved for a loan could potentially help your case.