Whether you’re currently shopping for a mortgage or planning to start the home buying process soon, you may be wondering how long a preapproval letter lasts. Of course, that’s a valid question, considering current market conditions.
The short answer is 60 to 90 days. And depending on the available inventory and demand in your area, you may need more or less time to find a home and secure a mortgage that works for your financial situation.
Read on to learn more about mortgage preapprovals, how they differ from prequalification letters, what you can expect when applying and factors that help determine the amount you’re preapproved for.
What Is a Mortgage Preapproval?
A mortgage preapproval is a preliminary loan offer from the lender that you’ll receive if you’re a good fit. But first, you’ll have to complete a formal mortgage application, agree to a hard credit check and undergo verification by the lender to confirm the information you’ve provided is accurate.
It gives you the reassurance that you’ll likely get approved for a home loan. You’ll also get a preapproval letter from your lender communicating that you’ve been pre-approved for a loan.
Is Preapproval Different from Prequalification?
Both give you an idea of how much home you can afford and the terms you’ll likely receive, but there’s a significant difference. A mortgage prequalification doesn’t hold as much weight because the lender doesn’t verify your financials or analyze the information in your credit report. Instead, they simply provide you with an estimate of what you could possibly borrow.
Furthermore, getting prequalified is generally one of the first steps you’ll take before you start shopping for a loan. However, you’ll typically get pre-approved once you have a shortlist of lenders and are ready to move forward with purchasing the home of your dreams.
How Long is a Mortgage Preapproval Good for?
Most mortgage preapproval letters are good for anywhere from 60 to 90 days. However, be mindful that any changes to your financial situation or credit profile could invalidate the proposed offer. There are also instances where prospective homebuyers are no longer eligible for a home loan due to factors like a job loss or significant reduction in earnings, a heavier debt load or a significant credit score dip.
Typical Mortgage Preapproval Process
Here’s a preview of the information you’ll need to provide when seeking a mortgage preapproval:
- Mortgage type, loan term and down payment amount
- Details about the property
- Personal and Identifying information, including your name, address, date of birth and Social Security number
- Employment information and most recent pay stubs or 1099 forms if self-employed and tax returns from the last two years
- Monthly income and combined housing expense information
- List of assets, respective balances and liabilities (i.e., outstanding balances for credit card and loan accounts)
- Copies of your most recent bank, investment and retirement account statements
Factors That Can Impact Preapproval of Your Mortgage
DTI Ratio
Your debt-to-income (DTI) plays a significant role in the loan amount you’ll qualify for. Most lenders prefer this percentage to be at or below 45%. But you may have more flexibility if your credit score is high or if you opt for a government-backed loan product.
LTV Ratio
Your loan-to-value (LTV) ratio compares your mortgage amount to the appraised value of your home. So, if you get a mortgage for $325,000 and the property is worth $355,000, you’ll have an LTV of 91.5%. Lenders prefer an LTV of 80% or lower, and a higher percentage means you’ll likely have to pay private mortgage insurance (PMI). Still, it’s not uncommon to get preapproved for a mortgage with competitive terms with a far lower down payment.
Credit History and Score
The lender will assess your creditworthiness to determine whether they can offer you a mortgage. You’ll need a credit score of at least 620 to qualify for a conventional loan. However, FHA loans have a slightly lower requirement of 580 (or 500 with a 10% down payment). The lender will analyze the information in your credit profile from the last few years, and it could impact your eligibility for a home loan.
Employment and Income History
Do you have a stable employment history, or are there gaps? How about your income – is it consistent and verifiable? Both are factors that lenders will consider when deciding if you should be pre-approved for a mortgage.
