Mortgage 101

Does a Preapproval Guarantee a Mortgage?

By Courtney Christensen on November, 9 2020
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Courtney Christensen

When you’re looking to buy a home, you’ll find yourself in a flurry of documents to locate, places to go, and tasks to do. One of these tasks is a preapproval. The benefits of getting a preapproval letter from a qualified lender are many: you will save yourself time later during the final mortgage process, you will be able to prove that you’re a serious buyer, and you will get a budget for homes to look at.

Preapprovals aren’t technically necessary, but they are an excellent idea. In fact, sellers may not want to accept an offer from someone without a preapproval because those buyers cannot prove they have the funds available to buy the home.

What’s the Difference Between Preapproval and Final Approval?

With a preapproval, you are providing a limited amount of paperwork for your lender to review. Once your lender looks over this paperwork, they can estimate how much money you could borrow. However, this is not an exact number, and it can change due to many factors. For instance, loan requirements may change (this could be because the government department that helps fund your loan has made changes to the loan requirements). Interest rates may also change, which can affect the amount of money you’re willing to pay every month. Another variable is your credit score – which changes all the time. All of these factors may change the amount listed on your preapproval letter.

In order to get an exact loan amount for you, your lender must send your application to an underwriter. Underwriting is the process of risk assessment regarding lending you a loan. How risky is it to grant you a loan? Can the lender be sure you will pay it back? These two questions are answered during the underwriting process. You may be asked to provide additional paperwork during underwriting – updated bank statements or a new credit check. However, if you’ve been preapproved already, underwriters won’t need second copies of that paperwork, which means you will be approved much faster than someone who hadn’t been preapproved.

What Can Happen in the Mean Time?

It doesn’t happen often, but it is possible to be denied a mortgage even though you’ve been preapproved. Some of these scenarios can be avoided, but some are out of your control. It’s best to work with your loan officer to ensure your preapproval stays current and your application remains valid.

You can lose your preapproval if…

It runs out. A preapproval is only valid for 90 days. After 90 days, you will need to submit a request for another preapproval. This can damage your credit score a little, so it’s best to get preapproved when you’re absolutely ready to buy a home.

The appraisal comes back short. If the house you want to buy suddenly appraises at a much lower (or much higher) amount, you will need to redo your application with the new information. If the appraisal is short, it’s a good idea to determine the reason to make sure this home is still worth buying.

The home doesn’t pass inspection. When you walk through the house with an inspector, they will point out any concerns they find. If these concerns are dealbreakers for you, you will need to pull out of the sale and focus on another house. Also, if the home presents major issues, your lender may deny your application. Their primary goal is to lend money to make money, so they will not approve a house that could turn into a money pit.

Your credit score drops. The biggest issue regarding your application is your credit score. Because it’s so easy to change your credit score for the worse, you should make sure to pay attention to your spending habits before buying a home. Don’t buy anything huge, like a car or boat. Don’t take out any personal loans during this time. Don’t apply for credit cards. Wait to spend money until after you have closed on your home.