What to know about mortgage preapproval
Shopping for and ultimately purchasing a home can feel like a day at an amusement park. Much like a ride on a roller coaster, buying a home can be both exciting and a little scary, and those peaks and valleys have been even more profound in recent years.
Though the real estate market has changed significantly in recent years, some conventional home buying wisdom still holds true. The importance of mortgage preapproval is one such notion, and it’s even likely that being preapproved for a mortgage before making an offer on a home is more significant now than it was as recently as half a decade ago.
Mortgage preapproval essentially confirms to sellers and sellers’ agents that a given buyer has qualified for a mortgage they can use to purchase a property.
Some buyers may hear the term “prequalification” and assume it’s the same thing as preapproval. However, the lending experts at Lendingtree report there is a notable distinction between the two terms. Prequalification is less formal and based on a casual conversation with a lender that may or may not involve details about a buyer’s credit history, income, monthly expenditures, and other pertinent financial information. Preapproval is a formal examination of a buyer’s finances and financial history that is conducted after documentation such as W-2s and bank statements are provided.
Mortgage preapproval is a simple process and it’s a service offered by most mortgage lenders. A simple phone call or email to a lender can get the process started, and it does not take long for a lender to decide if an applicant qualifies for preapproval. However, insufficient documentation or misleading information can slow down the preapproval process.
It can take buyers a long time to buy a home in a competitive market with low inventory. So it’s important that prospective buyers recognize mortgage preapproval has a shelf life of around 60 to 90 days. The preapproval letter a lender provides will indicate an expiration date for the preapproval. If that date comes and goes without buyers purchasing a home, they will have to reapply for preapproval.