Before you even step foot in the real estate market, looking at homes for sale, you need to find a lender. Once you do, you need to secure a pre-approval letter from them that lets the seller and/or real estate agent know that you are pre-approved for the loan. Without this letter, many sellers won’t even waste their time showing you the home. They only want serious buyers that they know have the ability to secure financing (or pay cash).
The pre-approval letter not only lets sellers know that you are capable of getting financing, but it also lets them know how much financing you can afford. If you can only get a loan for $100,000, but the home is $200,000, you won’t be a good fit for that particular home. But just how long does the pre-approval letter last?
Understanding the Pre-Approval
The pre-approval letter is the underwriter’s statement that they are willing to give you a loan based on the information provided. You must provide all of your qualifying documents in order to ensure that the lender can write you a pre-approval. This includes your paystubs, W-2s, tax returns, and asset statements. The lender will use this in conjunction with your credit report to determine if you qualify for the loan.
If you qualify, the lender will write a letter that states the loan amount that you qualify for, the loan program, interest rate, and terms of the loan. You can then use this letter to help you as you shop for a home. You know the amount of home that you can afford, as well as what your estimated payment will be (you must lock the interest rate for a final payment). This letter will give you the upper hand when you shop for a home and place a bid on it.
The Expiration Date
So now, the moment of truth begins. When does the loan pre-approval expire? Typically, you have up to 90 days. Some lenders may only make it good for 60 days, so make sure that you ask. At the very least, you’ll have 2 months to find a home and at the most 3 months.
If you don’t find a home in that time, though, don’t panic. You will just have to go through the approval process again. This just means updating your information, such as providing new paystubs or W-2s (if another year started). You may also have to provide new bank statements and the lender may need to pull your credit again. This is just because the lender needs to make sure that nothing changed during the time that you didn’t find a home. If everything is the same, your pre-approval will be extended. If you hurt your credit score or changed jobs in that time, the parameters of your loan may change.
How Many Pre-Approvals Should You Get?
You are able to obtain as many pre-approvals as you want. In fact, we recommend that you shop with at least three lenders. This way you can compare all three loans. What are the terms and what is the interest rate? What closing costs does the lender charge? Is the loan program one that you want or were you hoping for another type, such as conventional, FHA, or USDA?
It doesn’t cost you any money to get a pre-approval from a lender. It’s like window shopping. You get the pre-approval and then decide if the loan is right for you. If you need time to decide, you can shop for a home and think about which lender will suit your needs the most. If all parameters are equal on the loans provided, focus on the turnaround time of the lenders, as that can play a role in your purchase contract as well.
If you have a pre-approval and it expires, it’s not the end of the world. It just means that you’ll have to update your information. The best thing you can do during this time is keep everything ‘status quo.’ In other words, don’t go out and buy a new car or new furniture. You also shouldn’t change jobs or take on any new debt. Keep everything the same and your pre-approval will likely get extended, should you require it.