How long does mortgage preapproval take?

What is a mortgage preapproval?

Although preapproval isn’t officially required before you look for a home, that’s the best time to request mortgage preapproval. A lender will examine financial documents such as your recent W-2s and tax returns and determine an amount you may qualify for with a loan.

Shahwan says that getting preapproval is useful before searching for a new home because it tells you what you qualify for in terms of a loan. He also says that most of the time, borrowers must submit a preapproval letter when submitting an offer to purchase a home.

According to Shahwan, a loan officer can help a potential homebuyer by determining if the subject property has specific qualifications within which the borrowing needs to fit. For example, co-ops, which are housing arrangements where you buy shares in a corporate management company, usually have their own requirements for debt-to-income ratios (DTIs), down payment minimums and credit scores.

“Going through the steps to get preapproval would allow the borrower to understand if they fit within these credentials before putting in an offer or not,” Shahwan said.

In a tight real estate market, including your preapproval letter with an offer is key to demonstrating your ability to buy the home.

Your lender may turn you down for preapproval. This can be frustrating, but it gives you an opportunity to remedy whatever issues the lender had with your preapproval application, such as your debt-to-income (DTI) ratio or credit score.

Mortgage preapproval vs. pre-qualification: What’s the difference?

Preapproval and pre-qualification are often used interchangeably, but there are several key differences:

Shahwan explained that “with the preapproval letter, the borrower’s documents are reviewed by the lender for accuracy, whereas the pre-qualification letter is offered based on the borrower’s self-reported information.”

While these are general guidelines, you might ask your lender to clarify what documents they require and how they distinguish between preapproval and pre-qualification.

Shahwan also said, “While the preapproval letter may carry extra weight in the eyes of a seller, since the buyers’ documents have already been reviewed, both letters are subject to full underwriting approval.” In other words, neither preapproval nor pre-qualification is an official loan.

» MORE: Does mortgage preapproval affect your credit score?

How long does the preapproval process take?

Shahwan noted that the preapproval process is quick. The application itself takes around 10 to 15 minutes to complete, he says, and then the loan officer can review it.

“Depending on how complicated the overall financial situation is, a preapproval can be turned around that same day,” Shahwan said.

Your lender can tell you a timeline, but it is usually not more than 10 business days. For example, Credit Union of Southern California estimates a seven- to 10-day turnaround for preapproval. So while it is a quick process, don’t delay — get preapproval before house hunting in earnest. You don’t want to fall in love with a property only to be edged out by another buyer because you’re waiting on preapproval.

When should you apply for a preapproval?

It’s best to apply for preapproval when you’re ready to begin your house search and make an offer. Most preapprovals are good for up to 90 days.

If you’re only casually thinking about house hunting and it won’t happen for at least three months or more, you’ll want to wait on seeking preapproval, as it can impact your credit.

How long do preapprovals last?

Preapprovals generally last between 30 days and 90 days, depending on your lender. That’s why it’s crucial to get preapproval as soon as possible when you’re committed to searching for and making an offer on a home.

If your preapproval expires, the lender will need to run your application through the process again because your financial situation or credit rating may have changed.

What information is needed for preapproval?

When seeking a mortgage, gather documentation of your finances in order to get preapproval and show sellers you’re qualified to make an offer. Lenders may have slight variations, but typically you’ll need:

• Social Security number
• Recent pay stub (electronic or physical copy) with year-to-date earnings
• Two months of bank checking and savings account statements
• Investment account statements
• Two most recent years of tax documents (W-2s, 1099s)
• Debt statements on all loans (personal loans, credit cards, vehicle loans and more)

If you plan on using gift money for a down payment, you will need a gift letter. If you’ve been renting, the lender might also need references from your landlord.

Preapprovals for self-employed buyers

You may face challenges in getting preapproval if you’re self-employed, but the main requirement is that you show mortgage lenders documentation of your income.

Shahwan explains that for self-employed individuals, there may be nonconventional loan options available. He says that there are programs that look at profit and loss statements or bank statements of small businesses. Profit and loss statements are just what they sound like: a record of revenue, expenses and profits and losses for a company.

These financial documents show lenders how prepared you are to take on a mortgage, making it possible to get mortgage preapproval even while self-employed.

Reducing your debt to improve your debt-to-income (DTI) ratio can improve your chances of getting preapproval and a mortgage. Working to raise your credit score can help, as can meticulously documenting your self-employment history with at least two years of business tax records.

It can be helpful to work with a mortgage broker that has relationships with multiple lenders if you’re looking at nonconventional options geared toward self-employed individuals, Shahwan says.

Look into what banks or lenders offer for self-employed individuals seeking a mortgage. You’ll likely need one or more of the following from the past year, according to First National Bank of America:

• Form 1099
• Profit and loss statements that show your income over time
• Bank statements (both business and personal)

These types of mortgages for self-employed people may also have a higher down payment requirement.

Bottom line

Mortgage preapproval can be a valuable step in the process of buying your next home. This process offers key information on the type and amount of home loan you’re eligible for, which should direct your home search and help you save time.

You may ask lenders to clarify their definitions of preapproval versus pre-qualification, but in general a preapproval is a step further along than pre-qualification. Sellers may require preapproval before they accept an offer on a home, so having a letter can improve your odds of getting the home you want.

That said, be sure to do your own research by checking your budget and considering how much you can truly afford. You might be more comfortable seeking a smaller mortgage than your preapproval amount.