One of the most stressful steps to buying a house is getting preapproved for a mortgage. Before you have that approval letter, you won’t know how much you’ll qualify to borrow, or if you can even afford a house. But once you got that preapproval letter in hand, you probably breathed a sigh of relief and started looking in earnest. But wait — not so fast! In riskier loan environments — such as during a crisis, a recession, or when the Federal Reserve is expected to raise rates — your borrowing situation can change quickly. So, how long is a mortgage preapproval good for?
Mortgage preapproval letters have an expiration date, and it’s smart to keep that date in mind while you’re touring houses. Lenders need current information, because as Jessica Sanchez, Director of Underwriting and Loan Management at HomeLight HomeLoans, points out, “You giving me a bank statement or paystub from last year isn’t going to be helpful to know your financial situation today.”
Back up: What is preapproval, exactly?
Getting preapproved for a mortgage is essentially the first step to applying for the mortgage itself — you will likely have to give the lender much of the same documentation. The lender takes a high-level look at your income, finances, and credit history to determine how much they think you can afford. They then issue a preapproval letter.
Depending on the lender, they’ll likely ask to see bank statements, annual tax filings, paycheck stubs, and retirement and investment account statements. They’ll verify your employment status and pull your credit score, too. If you have any other loans or liens outstanding, such as car loan or business debt, they may request to see the loan documents.
This feedback informs their decision to give you a mortgage loan and how much you qualify to borrow. Depending on your credit score and savings, the lender might also require you to maintain a certain credit score between the date of the preapproval letter and the day you close on your house. Your overall credit profile can also inform how much money you must put down on the home purchase. If you have a lower credit score, a lender may require you to make a larger down payment. If you have excellent credit, the lender may allow you to go lower on the down payment.
You can (and should) get preapproved by several lenders, so you can compare and contrast their offers and mortgage interest rates. Many agents now require that you get preapproved for a mortgage before they’ll take you to look at houses — particularly when buying a house during coronavirus. It shows that you’re serious about homebuying and helps them find homes within your true budget.
Sellers often won’t accept an offer unless it’s accompanied by a preapproval letter. It tells them that you can afford the house and decreases their risk that the deal will fall through.
Once you have the preapproval letter in hand, remember: It comes with an expiration date and there are generally outstanding conditions that will need to be satisfied before your loan can officially close your loan.
How long is mortgage preapproval good for? The short answer: It depends
How long mortgage preapproval is good for depends on the lender, the buyer, and what’s happening in the market.
Generally speaking, mortgage preapproval letters expire within 30 to 180 days — so anywhere between one and six months. You’ll likely be working with a shorter timeframe if the lender has concerns about your job stability or the overall economic conditions.
The most common expiration date for a mortgage preapproval is typically 90 days, or about three months.
Your finances can change a lot in three months — you might lose a job or an income source, for example. As a rule, the lender will request updated financial information to confirm your finances, credit, and employment prior to your loan closing, particularly if it has been over 60 days since your preapproval was issued.
How long is your preapproval good? The long answer: There are a lot of variables
The factors that influence the length of time that your mortgage preapproval letter is valid can be both within and outside your control. Knowing what you can influence ensures that you don’t accidentally impair your creditworthiness while home shopping.
Mortgage preapproval factors in your control
Here’s what you should keep an eye on to make sure that none of your actions impact your mortgage preapproval letter’s good standing.
How good (and stable) is your credit?
If your credit takes a nosedive, your preapproval won’t be good anymore.
If you got preapproved for a loan amount that was a big stretch for your finances, and the economy starts to tank, your credit score might not be good enough to qualify you for that full amount anymore.
Now is not the time to take out a new car loan or max out a credit card! As much as possible, try to keep your credit profile the same as it was when you applied for the mortgage preapproval. This includes maintaining any open accounts, even if they have zero balances. Closing them impacts your credit utilization ratio and thus can lower your credit score. Remember, your lender is likely to reverify your credit prior to close and you don’t want them discovering any surprises that could jeopardize your loan right before it closes.
How much money do you have saved?
Sometimes you can save a loan by offering a bigger down payment. If you can do that, consider increasing the down payment amount to protect your preapproval.
As well, use the months when you’re home shopping to continue saving money. Avoid any major purchases or dips into your savings that could decrease your cash on hand, even if you didn’t intend to use those funds for your down payment.
In the lender’s mind, you could draw on an investment or retirement account to make payments if you lost your job or ran into hard times, so make sure to keep those accounts fully intact as you shop for a house and approach the finish line of the closing table.
How much do you want to borrow?
As noted, borrowing at the very top of your limit is going to mean that if anything changes (like your credit score or the economy in general), your preapproval might, too.
You can’t control if one partner loses a job, or takes a pay cut. But you can lower your home shopping budget and decide to borrow less money.
Have you asked for an extension?
Under normal circumstances, many lenders will offer an extension to your preapproval if you just haven’t been able to find the right house. They will likely ask for updated paystubs or other, smaller pieces of documentation before extending the letter.
If your preapproval letter is about to expire, but you’re still looking, Sanchez advises getting in touch with your loan officer. She says that they’ll ask for updated information so that “the underwriter can review and make sure nothing’s changed to your income or affected your credit.”
She advises reaching out as soon as possible because if you wait a few weeks or a month, the lender may require that you go through the full preapproval process over again.
Mortgage preapproval factors out of your control
These preapproval factors may be outside of your control, but knowing how they impact your preapproval can tell you what to expect if any of them change.
How good (and stable) is your career, and the job market in general?
If you lose your job, your preapproval will not be valid anymore. You might be able to qualify on the basis of one partner’s income … but it could be for a lower mortgage amount.
The length of your employment history will also have an impact on your mortgage preapproval. If you recently took a new job, even if it came with a bump in salary, lenders will be more cautious.
If there’s a lot of unemployment and not a lot of job opportunities, lenders might change loan requirements. They could also require a larger down payment or a higher credit score to qualify for the amount you want to borrow. Essentially, they’ll take actions that reduce their risk when lending.
What’s happening in the wider economy?
If the economy is in a state of flux, lenders might shorten the length of time that you can use your preapproval letter. Economic indicators that a recession might be coming could cause your lender to hedge their bets and issue a preapproval letter that expires sooner.
When the coronavirus pandemic hit, many buyers with jumbo mortgages rushed to close before their letters expired, knowing that lenders would respond to its impact on the economy by raising their mortgage qualifications. Lenders keep an eye on the economy so that they can extrapolate how it will impact individual borrowers.
The economy’s impact on your borrowing isn’t all negative, though. If lenders expect the Federal Reserve to lower the borrowing rate, your lender might only give you a mortgage preapproval letter good for 30 days, but you could also get a lower interest rate on your mortgage as a result of this shift.
How does consumer sentiment look?
If people are nervous and not buying things (especially big things like houses) right now, then fears of recession could affect your preapproval validity. While past recessions haven’t impacted the housing market too badly, decreased demand could impact home prices.
Lenders never want borrowers to carry a mortgage balance on a house that’s higher than the home’s value. If the homeowner defaults on the loan, they might not be able to recover their money. Therefore, if the lender thinks that consumer sentiment could drive down home prices, they might lower your maximum borrowing amount or ask for a larger down payment before closing.
What happens if your preapproval is no longer valid?
It’s not the end of the world if your preapproval letter expires — but it could put your homebuying plans on hold.
First step: Try to get an extension. If little has changed in either your life or in the wider economy, this shouldn’t be terribly difficult.
If that fails, go back to your second-choice lender and see how your loan is looking with them. They might be eager to secure your business and still willing to extend credit to you.
Sanchez warns that the downside to going to another lender is that “one lender might be more stringent than the other as far as documentation.” If you were happy with the rates and terms the first lender offered, it could also save time to continue working with them.
The lending market can change really quickly (as we learned in 2020). Underwriters will always go over a borrower’s finances very closely, even after getting preapproved. If something major changes during the period when your preapproval letter is still valid, the lender will address it during the full mortgage underwriting process once you have identified a property.
Getting preapproved a second time isn’t the end of the world, but if you’d prefer to avoid the hassle, work with a qualified agent who can help you find your dream home before your mortgage preapproval expires.
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