Is Mortgage Preapproval Worth It
Mortgage preapproval comes with several benefits. First, it gives you an idea of how much you can borrow, which will help narrow down your search to houses in your price range. But remember that just because youve been preapproved for an amount doesnt mean you have to borrow the maximum. In many cases, its probably a good idea that you dont. Thats because many mortgage lenders use your gross monthly income as a factor in determining how much you qualify for.
Your lender generally doesnt consider your daily living expenses things like groceries, utilities, childcare, healthcare or entertainment or monthly debts in its calculations. Its up to you to review your budget to make sure youre comfortable with the loan amount. Dont rely on your lender to tell you what you can afford.
The preapproval process could also uncover potential issues that would prevent you from getting a mortgage, so you can work them out before setting your heart on a house.
Lastly, a mortgage preapproval lets sellers know you have the borrowing power to back up an offer you make to buy their home, which could make your offer more competitive. It tells real estate agents, who typically work on commission, that spending time on you could well pay off with a transaction. And it alerts lenders that youre a savvy borrower who may soon be taking out a mortgage loan.
In short, getting preapproved for a mortgage signals that youre a serious buyer.
What Rate Shopping Means For Your Credit
Many are forgiving when it comes to borrowers who are rate shoppingthey don’t treat all inquiries the same. In fact, mortgage, auto, and student loan inquiries receive special treatment because credit scorers realize that you are looking for the best ratenot trying to apply for several mortgages, auto, or student loans. The exact impact of multiple loan inquiries all depends on the credit scoring model that’s used.
First, inquiries from these types of lenders don’t affect your credit score for the first 30 days after they are made. Your credit score won’t drop because of the loan application and it won’t make it harder for you to get approved.
Should I Apply For Multiple Conditional Or Pre
When looking for the right financial product and the interest rate the advice is always to shop around, but when you apply for home loan pre-approvals the opposite is true. Applying for multiple conditional or pre-approvals can have a negative impact on your credit score.
Research is still important, but it should be done well before you formally apply for a conditional approval. A conditional approval should not form part of your research and comparison, rather you should only apply for a home loan conditional or pre-approval once you have decided on a suitable lender.
You can also ask your lender to make recommendations before they make a credit enquiry. This will help you to decide on the best lender without affecting your credit score. A mortgage broker is also helpful when it comes to finding the right lender. They can assess your situation and give you an idea of your borrowing capacity with lenders without making formal enquiries.
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What A Mortgage Pre
Once you have been pre-approved for a mortgage, you will receive a pre-approval letter or certificate. You can then use your pre-approval letter as proof to sellers that you will be able to afford the home purchase or use the pre-approval amount to help guide you on your home search. Your pre-approval letter will include information such as:
- Your preapproved mortgage amount: This is the maximum amount that the lender is willing to let you borrow.
- Home price: This is the maximum price of a home that you can afford to buy based on your down payment.
- Mortgage interest rate: This mortgage rate is locked in for a period of time. If you apply and are approved for a mortgage within this period, you are guaranteed to have this rate, even if market rates have increased.
- Expiry date: Mortgage pre-approvals usually have a rate lock that expires in a certain period of time, from 60 days to 120 days. After this date, your mortgage rate is no longer guaranteed.
- Mortgage type: Your letter will show what mortgage terms your pre-approval was based on, such as the amortization, mortgage term, and LTV ratio. Your pre-approval letter may also specify your down payment and monthly mortgage payment amount.
Does Mortgage Pre Approval Cost Money
How much does pre-approval cost? Preapproval is free with many lenders. However, some charge an application fee, with average fees ranging from $300$400. These fees may be credited back toward your closing costs if you move forward with that lender.
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Should You Apply To Multiple Lenders
No one would blame you for wanting to keep it simple and applying for only one mortgage at one lender. But applying for multiple lenders can have some real benefits: Saving you lots of money and making sure you end up with the right fit. You just have to do it right.
A study by Freddie Mac in 2018 shows borrowers who didnt shop around paid more when compared to those that did. According to the study, for a $250,000 mortgage, a homebuyer who received one extra quote saved an average of $1,435 and borrowers who got at least five quotes stood to save the most over the life of the loan.
When deciding how many mortgage lenders to reach out to, there is no perfect number. Some experts recommend at least two or three options.
Applying For Conditional Or Pre
Before you apply for pre-approval you should:
Check your credit score
Ensure all details on your credit report are correct
If necessary, take steps to improve your credit score by demonstrating positive credit behaviour
Research and compare lenders and/or discuss options with a mortgage broker
Decide on a lender
Discuss your options and possible borrowing power with your chosen lender
A home loan conditional or pre-approval application can often be completed in your own time through an online application process. The information and supporting documentation used in your application is generally the same as that of a formal home loan application, which saves you time later down the track. With the ease of online applications, it may be tempting to apply multiple times, but remember that with multiple applications for credit, even home loan pre-approvals can hurt your credit score.
Find a suitable lender and stick with them to ensure you are given the best rate and a competitive deal on your home loan. With just one conditional approval or pre-approval in your tool box, all thats left is to find the perfect property, or in the case of the latter, make the offer. Good luck!
At Mortgage House, were no strangers to the property buyers journey. Its a long one. If youre thinking of applying for a home loan, you can Apply Online today to get started!
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Pull Your Own Credit Report
Consumers today have relatively easy access to their credit reports.
All three bureaus Transunion, Experian, and Equifax allow for one free copy of your credit report per year through a program called Annual Credit Report. These reports show your account history, but not your score.
Various websites allow you to see your credit scores for a fee. Just keep in mind that these services often show you a higher credit score than your lender will pull.
The only way to get a mortgage credit score is through a lender.
Before having several lenders pull your credit, though, its a good idea to do some research on your own.
Getting Prequalified Can Reduce Unpleasant Surprises
When used properly, prequalification is a helpful tool that can reduce your chances of being surprised by a credit card rejection or help you determine the odds of being approved for a loan.
Not only does a prequalification letter give you the information you need to decide whether youd like to proceed with a formal application for a loan or credit card, but it can also be submitted with a real estate offer to show buyers youre more likely to get the necessary funding to close on the property.
Obtaining prequalification is usually quick and painless, and most importantly, it wont affect your credit score.
Need help improving your credit score but not sure where to start? !
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How To Get Preapproved For A Home Loan
Get your free credit score. Know where you stand before reaching out to a lender. A credit score of at least 620 is recommended, and a higher credit score will qualify you for better rates. Generally a credit score of 740 or above will enable most borrowers to qualify for the best mortgage rates.
Check your credit history. Request copies of your credit reports, and dispute any errors. If you find delinquent accounts, work with creditors to resolve the issues before applying.
Calculate your debt-to-income ratio. Your debt-to-income ratio, or DTI, is the percentage of gross monthly income that goes toward debt payments, including credit cards, student loans and car loans. NerdWallets debt-to-income ratio calculator can help you estimate your DTI based on current debts and a prospective mortgage. Lenders prefer borrowers with a DTI of 36% or below, including the mortgage, though it can be higher in some cases.
Contact more than one lender. Comparing offers from multiple lenders can help you compare rates and fees and save you thousands of dollars over a 30-year mortgage. Going through the mortgage preapproval process shouldnt hurt your credit score. FICO, one of the largest U.S. credit scoring companies, recommends confining those applications to a limited time frame, such as 30 days.
Do You Need A Mortgage Pre
- In a hot real estate market its generally a necessity to have a mortgage pre-approval in hand
- While highly recommended, its not an outright requirement
- And it may not be necessary in colder real estate markets
- But its still important to know where you stand regardless of the sellers stance
At the end of the day, you dont necessarily NEED a pre-approval letter to make an offer on a piece of property.
But nowadays, with so few properties on the market, and so many multiple-bid situations, its often a requirement just to hear back from the sellers agent.
Sure, you can tell your real estate agent to tell the listing agent that youve got an 800 credit score, $1 million in the bank, and a job that pays you $500,000 a year. And they might say fine, skip the pre-approval.
But chances are thats not your financial profile, so just to play ball and keep everyone happy, it often makes sense to get the pre-approval done. It will also strengthen your offer. And you might learn or catch something along the way.
As I alluded to earlier in this post, its good to know where you stand as well. You might think youre a sure shot at getting a mortgage, but surprises arent all that uncommon and mortgage underwriting guidelines change all the time.
So a pre-approval could actually save you time and money, despite being a task that needs to be taken care of upfront. It shouldnt take very much work to get one anyway.
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Your Credit Score Remains The Same Even If You Getpre
Experts will advise you to get a pre-approval from several lenders for good reasons: it will not hurt your credit score and you could get the most competitive rate. The best time to get a pre-approval is before you start looking for homes or submitting an offer. Although lenders will pull out your credit history and make a hard inquiry, it will not affect your credit score because youre just shopping for a more beneficial mortgage interest rate. Hard inquiries could hurt your credit only if they are a result of your trying to open multiple credit cards in a short time. Credit scoring company, FICO even recommends homebuyers to get a pre-approval from multiple lenders within 30 days to secure a better rate.
On average, you could save hundreds of dollars in interestif you could compare pre-approvals from at least five mortgage lenders.
Keep Your Information Updated
As mentioned earlier, lenders use your credit report for verification purposes. You’ll want to make sure that your information is current, as to not confuse or raise suspicion with your lender.
It also pays to be honest when talking to your lender. Just as you would with a formal loan application, you should be sincere, accurate, and reliable with all the information that you will be sharing to your lender for the pre-approval process.
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How Getting A Mortgage Loan Can Affect Your Credit Score
When you apply for a loan, lenders make hard inquiries into your credit file to learn if you are a good credit risk. A hard inquiry affects your credit score because it looks at how recently and how often you apply for credit, according to the Consumer Financial Protection Bureau. However, your credit is not affected by the outcome of hard inquiries, CFPB reports.
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Mortgage Preapproval: Everything You Need To Know To Get Preapproved
Getting that letter is one of the first and most important steps in the home-buying process.
Your home-buying journey starts with getting a loan preapproval letter.
Buying a home — especially for the first time — is a complicated process. One of the first and most significant steps of buying a home is getting your mortgage preapproval. It’s proof that you’ve lined up the financing you need to close on the home. Without a preapproval letter, most sellers aren’t going to take your offer seriously.
Although some lenders have tightened their standards due to the pandemic, it’s usually not too difficult or complicated to get a home-loan preapproval. Let’s look at how it works.
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Does A Preapproval Letter Expire
Once you have your preapproval letter, you may be wondering how long it lasts. Your income, credit history, interest rate think about all the different ways your finances can change after you get your letter. For this reason, a mortgage preapproval typically lasts for 60 to 90 days.
Once it expires, youll need to connect with your lender again with your updated paperwork and apply for a new preapproval letter. The good news is, this typically doesnt take too much time since they have most of your information on file. But bear in mind that re-applying requires another hard inquiry on your credit rating, and your credit score can be further impacted.
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Solved: Could Mortgage Pre
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Unless you are planning to pay all cash, pre-approval is an important step in the process of buying a home no matter what type of financing you choose.
You may have heard that applying for a credit card can reduce your credit score, and you might wonder if applying for pre-approval would do the same. Its wise to protect your credit score when youre considering a big purchase. But there is good news. The impact of pre-approval is small, and its well worth the benefits when youre serious about buying a home.
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How Does Prequalification Affect Credit Scores
There are two types of credit inquiries that financial institutions run to determine whether a person qualifies for a loan. A soft credit inquiry, which is used during the prequalification process does not affect credit scores, so there is no risk in trying to find out whether youre at least in the ballpark for approval for a specific loan or credit card. Viewing your own credit scores and reports also counts as a soft inquiry.
A hard credit inquiry, which takes place when you actually apply for a loan or credit card, will have a negative impact on credit scores, although the impact will be temporary. Hard inquiries are made during the pre-approval or approval process, when the lender examines your credit report to determine whether there is anything that would make you a credit risk.
But what about shopping for a mortgage? Does getting prequalified for a mortgage hurt your credit score?
Just like other loans or credit cards, mortgage prequalification doesnt hurt your scores since its also based on a soft inquiry. Having your credit report evaluated is a mandatory and necessary part of the mortgage process, Bey said. Because of that fact alone, there would be no benefit to the bank or anybody involved in the transaction to punish the prospective buyer for having their credit evaluated by a bank.
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Why Should I Get Pre
Since being pre-approved wont significantly lower your credit score, many experts say its worth the extra time and effort to secure a letter of pre-approval from a lender. Your letter of pre-approval is your golden ticket into the world of home-buying.
Once youre pre-approved, you can show your letter to sellers to let them know youre serious about buying and not just window shopping. This also lets them know that you have the finances to secure a mortgage if they decide to sell their home to you.
When you are pre-approved you know the budget you have to work with. You will be able to narrow your search to homes in your price range. This will help you save time.
Once you find a home you love, youll be able to close and move in quickly since your lender already has your information on file from the pre-approval.
Being pre-approved is a win-win for everyone involved, and you can shop confidently once you have your letter in hand.
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