Home loan pre-approval (or conditional approval) means that a lender has agreed, in principle, to lend you money towards the purchase of your home but hasn't proceeded to full or final approval. Getting pre-approved for your home loan allows you to look – and enquire – with confidence.
When you're pre-approved for a loan, it means the lender provisionally agrees to lend you the money, based on the preliminary information you give them. It doesn't mean you are guaranteed to get the loan. Final approval for the loan will be subject to a hard credit check and other final checks.
Personal loans and pre-approved loans are usually short-term credits that require no security or collateral. The difference being, pre-approved loans are an invitation to apply for quick funding while personal loan applications can be approved or rejected by the lender.
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.
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.
The drawbacks of getting your loan pre-approved are minimal, unless you have several pre-approvals in a short period of time, which could possibly damage your ability to borrow. Having multiple pre-approvals, one after the other—and with more than one lender—could give the impression that you are financially unstable.
There's no downside to prequalification, as long as you understand it's really a rough estimate, not a binding offer in any way. Think of it as the initial step on the road to getting your mortgage. The next step? Going for preapproval — a more committed agreement from a lender to loan you a certain amount.
If you're preapproved, you'll receive a preapproval letter, which is an offer (but not a commitment) to lend you a specific amount, good for 90 days.
On average, it takes 7-10 days to get a pre-approval, although in some cases it may take less time. To speed up the home loan pre-approval time, you should gather your financial documents that the lender will require (e.g., W2s, proof of income, tax returns, etc.).
For this reason, a mortgage preapproval typically lasts for 60 to 90 days. Once it expires, you'll need to connect with your lender again with your updated paperwork and apply for a new preapproval letter.
Advantages of pre-approved personal loan
A pre-approved loan is typically offered at an attractive interest rate compared to regular personal loans. Sometimes, the lender gives exclusive benefits like zero processing fees, zero prepayment charges, zero foreclosure charges, etc.
The short answer is yes, you could certainly offer more on a house than what you've been pre-approved for. But you'll probably have to pay the difference between the loan amount and the purchase price out of your own pocket. It's actually a pretty common scenario.
Pre-qualifying for a personal loan is a first step in the loan approval process. It gives lenders an idea of your creditworthiness, and it gives you a preview of the loan you might receive. Getting pre-qualified, however, doesn't guarantee you a loan; lenders will verify your information before final approval.
Getting preapproved may be a better indication that you'll get approved for a loan or card—but it depends on the process. For example, if you're preapproved for a credit card online, the card issuer may be using preapproved and prequalified to mean the same thing.
This preapproval generally depends on your credit and finances remaining the same once it comes time to buy. But a preapproval is only a conditional green light that you'll qualify for a specific loan; it doesn't guarantee final loan approval. Final loan approval is contingent on other conditions and specifics.
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.
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.
The short answer to your question is that a mortgage pre-approval can be cancelled if your personal or financial circumstances change. Your pre-approval is conditional and based on the information you provide the lender. If that information changes, your pre-approval is subject to cancellation.
Prequalification is generally a quick, free process where a bank takes your financial information and lets you know generally what your loan will look like. Preapproval is actually a follow-up process that is much more involved and often costs money.
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.
Most mortgage lenders offer you the option to lock in your mortgage rate after your loan application has been pre-approved. You'll want to implement the lock before the mortgage goes through the underwriting process. Call or contact your mortgage lender and ask them about a rate lock.
A prequalification or preapproval letter is a document from a lender stating that the lender is tentatively willing to lend to you, up to a certain loan amount. This document is based on certain assumptions and it is not a guaranteed loan offer.
Here are the benefits of being a pre-approved buyer
You know the details of your financing before you pick out a house. You not only know how much house you can afford, you also know the terms of your loan. You know how much you can spend and won't waste time looking at homes you can't afford.