What exactly is a mortgage preapproval and why is it so important?

A mortgage preapproval is a letter provided by a lender that specifies the type and amount of loan you qualify for. This letter is issued after the lender evaluates your financial history, which includes reviewing your credit report and score. By getting preapproved for a mortgage, you can confidently search for homes within your budget and demonstrate your seriousness as a buyer. Additionally, obtaining preapproval allows you to find a mortgage lender who can work with you to select a home loan that aligns with your needs in terms of interest rate and other conditions.

What’s the difference between pre-qualification and preapproval?

A pre-qualification is like an audition, while a preapproval is a dress rehearsal for an actual loan application. With a pre-qualification, a lender can estimate the mortgage amount you may qualify for and provide some preliminary loan terms, without delving too deeply into your financial details. This is commonly known as mortgage pre-qualification and is based on your estimated credit score and other information you provide, such as the purchase price of the home, your down payment, monthly debts, and loan preferences (length, fixed- or adjustable-rate interest, etc.).

On the other hand, with a preapproval, you complete a full application with supporting documentation. The lender conducts a credit check, reviews your credit report and score, and provides a written offer for a loan at a specific interest rate. It’s important to note that even with a mortgage preapproval, your loan still needs to go through underwriting, which is the final stage of due diligence before the loan is issued. This typically occurs after you have a home under contract.

When is the ideal time to obtain preapproval for a mortgage?

The optimal time to obtain a preapproval is just prior to embarking on your home shopping journey. By verifying your borrowing capacity, preapproval aids in determining your affordability. (However, it’s important to note that you may not want to spend the full borrowed amount on a home.) Additionally, a mortgage preapproval letter grants you a competitive edge over other potential buyers who have not yet obtained preapproval.

If I get reapproved, how long will it last?

The duration of a mortgage preapproval may vary among lenders, typically lasting for 90 days. It is common for the preapproval letter to include an expiration date. If you continue your home search beyond this timeframe, you can request the lender to renew the preapproval. In such cases, you may be required to provide updated information, and the lender may conduct another credit check.

Does obtaining preapproval from multiple lenders have a negative impact on my credit score?

A lender’s request to review your credit report is known as a “hard inquiry.” These inquiries can potentially lower your credit score if they occur due to attempting to open multiple new credit lines in a short period. However, when it comes to rate shopping for a home loan, having multiple hard inquiries generally does not have a negative impact on your credit score. FICO, one of the leading credit scoring companies, advises limiting rate shopping to a relatively narrow timeframe, such as 30 days. This ensures that you can find the best rate for your home loan without unnecessarily affecting your credit score.

Contact Sword Mortgage To Learn More About Your Options

Call (770) 757-5750 or complete our online form to speak with a loan expert at Sword Mortgage to get help navigating your options and find a loan that fits your needs today.