Before you start your house-hunting journey, you’ll need to know your budget. The most accurate way to do that is by getting pre-approved for a mortgage.
How long does it take to get a mortgage pre-approval? To answer that, you’ll need to learn a bit more about the pre-approval process and what to expect when buying a home.
Pre-Qualification vs. Pre-Approval
If you’ve already been pre-qualified, do you also need to be pre-approved for a mortgage?
While it’s not a strict necessity, you’ll need to go through the pre-approval process if you want to get the most accurate mortgage estimate. Some borrowers use “pre-approval” and “pre-qualification” interchangeably, but there are distinct difference
Pre-qualification is a quick, rough estimate of your purchasing budget. A mortgage lender can pre-qualify you after a soft credit pull, and the whole process can be completed within minutes based on the information you tell your Loan Officer..
The pre-approval process is more in-depth and involves a thorough examination of your finances, as well as a hard credit pull and documentation to support your income and assets. In return, you’ll receive a document known as a “pre-approval letter,” which will outline your purchase price and the type and terms of your mortgage loan that you qualify for..
What Information Is Needed to Get Pre-Approval for a Mortgage?
In order to receive a pre-approval letter, you’ll need to provide your lender with a full financial history. This typically includes:
- Social Security number
- Pay stubs
- Driver’s license
- Proof of income
- Bank statements
- W-2 statements
- Tax returns
- Employment verification
- Proof of assets
Most significantly, your lender will do a hard credit pull (credit report pulled through 3 bureau’s: Equifax, Experian and TransUnion) to evaluate your credit history. The higher your credit score, the lower your interest rate is likely to be. A low credit score doesn’t prevent you from being pre-approved, though it can affect the type of home loan you qualify for or interest rate.
Self-Employed Mortgage Approval
If you’re a business owner, freelancer, or private contractor, you may have found it challenging to get mortgage pre-approval since you lack the formal documents to prove your income, assets, and other financial data. But self-employed individuals can still receive approval for a mortgage loan if they supply certain documentation, such as:
- Form 1099
- Recent tax returns
- Bank statements
- Profit and loss statements
- Company balance sheets
As always, self-employed borrowers can expect a hard credit pull to assess their credit history prior to receiving final approval.
What’s in a Pre-Approval Letter for a Mortgage?
Once you’re approved, you’ll receive a document known as a “pre-approval letter.” This document includes information about you and the nature and terms of your loan. It commonly includes:
- Your name (and the names of any other borrowers)
- The total purchase price you’re approved for
- The type of mortgage and the term
- Your approved interest rate
- The property address (or area you’re looking to buy a home)
- Your down payment amount
- The expiration date of the pre-approval letter
Keep in mind that a pre-approval letter doesn’t guarantee the terms it contains. Purchase price, loan type, and interest rate are all subject to final approval, which depends on your financial information remaining unchanged between pre-approval and final purchase.
How Long Does It Take to Get a Mortgage Pre-Approval Letter?
Depending on your lender and the complexity of your finances, you should be able to receive pre-approval within the same business day. But for some, the process can take up to a week.
How Can I Get Pre-Approved Faster?
You can speed up the pre-approval process by gathering your documents ahead of time. While your lender will still need time to review your mortgage application and financial data, having your data organized well in advance will simplify the process.
If you’re thinking about buying a home, start saving your pay stubs and bank statements now — you’ll need them when you go through the pre-approval process.
How Long Does Pre-Approval Last?
Pre-approval has an expiration date, usually 60 to 90 days after receiving the letter. Your pre-approval letter will likely specify the expiration date, after which you’ll need to apply for pre-approval again to continue house hunting.
Does Pre-Approval Hurt My Credit Score?
Because the pre-approval process involves a hard credit check, it can lower your credit score by a few points. This effect can be multiplied if you fill out multiple mortgage applications within the same period.
However, the impact on your credit score is relatively small and is unlikely to alter the interest rate you’re approved for. And after roughly two years, hard credit inquiries will disappear from your credit report.
With that being said, because the pre-approval process affects your credit, you should only seek pre-approval when you’re ready to get serious about buying a home.
Before that, you can seek pre-qualification to give yourself a ballpark estimate of your purchase budget, then seek pre-approval once you’re ready.
Why Should You Get Pre-Approved for a Mortgage
There’s no law that says you have to get pre-approved for a mortgage before you start shopping for a home, but a pre-approval letter will make the process much easier. Here’s how.
Your Offer Carries More Weight
Many sellers are unwilling to consider an offer unless you have pre-approval. Without a pre-approval letter, there’s a greater likelihood that you’ll fail to obtain financing, causing the deal to fall through. And in a seller’s market, a pre-approval letter from a mortgage lender can help you stand out from other competing buyers.
Know What You Can Afford
One of the most important benefits of mortgage pre-approval is that you’ll be able to zero in on your price range. Doing so will allow you to proceed through the home-hunting process with realistic expectations about what you can afford and find a property that matches your needs and budget.
Easier to Look for Homes
An approval letter can also give you greater confidence when searching for the right home.
Even in an unstable housing market, you’ll know exactly what to expect in terms of down payment, interest rate, and more. Additionally, your pre-approval letter will usually specify the geographic area you’re approved to shop in, which can help you narrow down your list of potential properties.
Lock in Your Mortgage Rate
Some lenders offer a mortgage interest rate lock, which lets you tell your loan originator you want to lock in your interest rate. With a mortgage interest rate lock in place, your interest rate will remain unchanged as long as you close your loan on time.
CrossCountry Mortgage FastTrack Credit Approval
How long does it take to get a mortgage pre-approval? With some lenders, the process can take as long as a week. But time is of the essence — the faster you can obtain financing, the more competitive you’ll be in sellers’ eyes.
That’s why CrossCountry Mortgage offers a FastTrack Credit Approval program. Our clients have closed their home loans within seven days of signing the original purchase contract. That kind of speed matters to sellers, who are generally more willing to work with buyers who offer a quick turnaround.
For more information, contact CrossCountry Mortgage today.