It's indicative approval from a lender that they will lend you a specific amount subject to certain conditions. It is not a guarantee that your application will be approved – it is simply an indication that your application fits the lender's criteria.
Getting pre-approved for a loan only means that you meet the lender's basic requirements at a specific moment in time. Circumstances can change, and it is possible to be denied for a mortgage after pre-approval. If this happens, do not despair.
Both pre-qualified and pre-approved mean that a lender has reviewed your financial situation and determined that you meet at least some of their requirements to be approved for a loan. Getting a pre-qualification or pre-approval letter is generally not a guarantee that you will receive a loan from the lender.
Because your lender is verifying your income and assets along with your credit history, a mortgage preapproval is a more accurate estimate of what you can afford. It also carries more weight with a real estate agent and the seller, because they'll know your lender verified that you can afford the home you wish to buy.
What's the difference between approval and pre-approval? One word: verification. Pre-approvals are an estimate, not a promise. A pre-approval is a non-binding statement saying, based on a cursory review of your unverified financial status, that you are eligible for a loan up to a certain amount.
Pre-approved means that the credit card issuer believes you're likely to be approved, but approval is not guaranteed. You'll still have to submit an application, and the credit card company will then do what's known as a hard credit inquiry, or “hard pull,” of your credit report.
Being prequalified or preapproved isn't a guarantee that you'll be offered a loan — you'll still need to provide more information before you can be approved and receive an official loan offer.
A mortgage preapproval can have a hard inquiry on your credit score if you end up applying for the credit. Although a preapproval may affect your credit score, it plays an important step in the home buying process and is recommended to have. The good news is that this ding on your credit score is only temporary.
Having a pre-approved loan offer isn't a guarantee that you will get a loan, although it is likely. There is also no guarantee that you will be offered the exact same terms that the pre-approved loan indicated, as a change in circumstances could affect the interest rate, for example.
You will need to have your formal approval from the lender organised to finalise your home loan. This will require you to provide your lender or broker with documents including the signed contract of sale and any other additional documents the lender requested as a condition of your preapproval.
If you're preapproved, you'll receive an approval letter offer that lasts for 60 – 90 days depending on the lender. After that, you'll need to apply again with another credit pull and updated paperwork. If there are any major changes to your financial situation, your preapproval limit might also change.
Once you've received pre-approval for your home loan, you'll need to find the property that you want to make an offer on. From there, the time it takes for your lender to perform their own valuation of the property and then offer unconditional approval will be 1-2 weeks, if everything is in order.
There are a number of instances in which your lender could potentially make the decision to revoke your pre-approval, including the following: You lose your job or main source of income. The property you want to buy fails to meet the lender's requirements. You have been dishonest on your application.
Some of the benefits of getting a mortgage pre-approval include: Giving you a better idea of what you can borrow and afford. Making your offer stronger. Speeding up the closing process.
This is because pre-approval for loans are recorded in your credit history, and can affect your credit report. Multiple applications can reflect poorly on your credit rating, as it may appear that your financial situation is unstable.
Bottom line. A mortgage pre-approval can help you gauge how much mortgage you can afford and position yourself as a serious homebuyer. It's a good idea to apply for pre-approval at the beginning of your homebuying journey — or even better, apply with several lenders to ensure you get the lowest interest rate you can.
Compared to pre-qualification, pre-approvals are much more thorough. During the pre-approval process, you would likely be asked to give information and documentation for pay stubs and bank statements, for example. In other words: a pre-approval requires a hard credit check.
Put simply: A preapproval letter is not a binding contract, but it does serve as a form of up-front verification that gives partners the confidence that you're able to meet your financial obligations should you decide to enter into a purchase agreement.
It can take anywhere from several business days to several weeks for your application to be processed once you have applied for pre-approval, while some lenders even say applicants can receive their outcome on the same day as applying.
When you're offered a pre-approved loan, the lender has already evaluated your financial standing and credit history in detail. This means that the processing time for the loan is short, and the disbursal is quick.
A preapproval letter is an important document to help you get a step closer to homeownership, but it's not a formal loan commitment letter. A loan commitment letter is a formal document from your lender that says you're approved for the loan.
A mortgage pre-approval affects a home buyer's credit score. The pre-approval typically requires a hard credit inquiry, which decreases a buyer's credit score by five points or less. A pre-approval is the first big step towards purchasing your first home.
In fact, you can — and should — get preapproved with multiple lenders. Many experts recommend getting at least three preapproval letters from three different lenders. Each mortgage lender will give you a unique offer with its own interest rates, loan amounts, origination fees, and other upfront closing costs.
Conclusion. In review, you can obtain two pre-approvals, but it is not recommended. The application process requires your credit score to be checked. Doing this too many times could negatively impact your credit score and lessen your chances of approval.