What is a mortgage preapproval, and how long does it last?

It can be useful when looking for a property as it shows the estate agent that you’re a serious buyer and that any offer you make is realistic. 

Here, you can learn more about what a mortgage preapproval involves and how to use one. 

What is a mortgage preapproval? 

A mortgage preapproval is a written indication from a bank or lender stating how much it might be prepared to lend you. It’s not binding as they could still refuse you a mortgage, but it’s a useful indicator of what you can borrow, and realtors take them seriously. 

A mortgage preapproval is different from ‘pre-qualification,’ which is more informal and gives you an idea of how much you can borrow. The information you provide isn’t often verified, and this doesn’t involve a hard credit check. 

Why apply for a mortgage preapproval? 

You may be wondering why you might go for a mortgage preapproval first rather than just go ahead and apply for a mortgage. 

The simple answer is that getting a mortgage preapproval is quicker and involves less effort. You can often get one in a day if there are no hitches. At most, it should take only a few days.  

So, you can go house-hunting and make a firm offer on a home you like the look of. 

What’s the difference between a mortgage preapproval and an offer? 

As mentioned, mortgage preapproval isn’t a binding offer. So, while receiving one means that your preferred lender may be prepared to lend to you on certain terms, a more complete assessment of your financial circumstances must be made before you receive a binding offer. 

Do I need a mortgage preapproval? 

Having a mortgage preapproval isn’t compulsory, but there are several good reasons for getting one done. 

A mortgage preapproval gives you a clear idea of what you can afford, so you know your potential buying power and limits. Sometimes, you can afford a more expensive property, while sometimes, your ambitions must be slightly scaled back. 

Some realtors and sellers will only take your offer seriously if you have a mortgage preapproval. By showing what you can expect to borrow, it reduces the risk that you’ll apply for a mortgage and be rejected. 

A mortgage rejection is bad for your credit file, as it can make your next application even harder. A mortgage preapproval application gives you a ‘dry run’ with less risk attached. 

When should I get a mortgage preapproval? 

As soon as you’ve decided to start looking to purchase a home, apply for a mortgage preapproval. Knowing what you can afford, even theoretically, will help you confidently look for a property.  

Having a mortgage preapproval can also save time when buying a property, both in terms of getting your offer accepted and speeding up the application process. 

Some lenders will give you a letter when they offer a mortgage preapproval, which can be useful to show to realtors. 

What this entails may differ by lender but could include:  

Will applying for a mortgage preapproval affect my credit rating? 

A mortgage preapproval requires a credit check, usually a hard inquiry instead of a soft one.  

A soft inquiry simply checks against your file without leaving a ‘footprint.’ This check won’t be visible to other lenders, so it shouldn’t affect your credit file. 

A hard inquiry shows on your file as an application for credit and can impact your credit score.  

If many hard inquiries are made on your file within a short time, lenders looking at your credit history for your mortgage application may think you’ve been rejected for credit several times and could choose not to lend to you. 

It’s worth discovering which lenders make soft inquiries and which use hard ones beforehand. 

Remember, it’s good practice to check your credit file regularly. It’ll give you time to sort out any problems or to add a note to your file if something from your financial past could affect it. 

How to get a mortgage preapproval  

You can apply for a mortgage preapproval: 

It’s generally better to use a mortgage broker since they will have access to more mortgages than you can find. You can also save time since your broker can find the best potential mortgage deal immediately. 

This means that as soon as your offer is accepted, you can call your broker and ask them to proceed with the full application – instead of having to shop around some more. 

Can you get more than one mortgage preapproval? 

If you receive a mortgage preapproval from one lender that is below what you expected, you can seek out other lenders to try and get an improved offer. 

However, before seeking out multiple potential offers, ensure you know which lenders will perform a hard inquiry on your credit score, as numerous hard inquiries can damage your score. 

How much does a mortgage preapproval cost? 

There usually won’t be any charge from a lender or a broker for a mortgage preapproval, and a broker will typically charge you once your mortgage deal is secured. 

What do you need to get a mortgage preapproval? 

Your mortgage broker or lender will ask you many questions, covering your income, spending, the type of work you do, your credit history and the size of your downpayment.   

You’ll need the following information to hand: 

You’ll need these for your mortgage application. It should go without saying: make sure all the information is correct, or you may face rejection. 

How reliable is a mortgage preapproval?

A mortgage preapproval indicates what a lender may, in principle, let you borrow. It remains conditional on you being able to meet the criteria for the mortgage and is not a guarantee. 

Mortgage preapproval: what can go wrong? 

You can be declined when applying for a mortgage preapproval, which can harm your credit score. 

Reasons for a rejection include:

Even if your mortgage preapproval is accepted, your full application could be rejected later. For instance, if the lender only made a soft inquiry, this may not have revealed everything in your credit file. Other information may come to light in a hard inquiry for a mortgage application. 

Nevertheless, this is a good opportunity to iron out any potential problems. 

Can estate agents use a mortgage preapproval to raise the price? 

A property’s purchase price is only legally binding once contracts have been exchanged. This means that sellers can raise their price anytime, whether they know what you can afford or not.  

How long does a mortgage preapproval last? 

Depending on the lender, a mortgage preapproval can be valid between 60 and 90 days. 

You may need to get another if you haven’t found a property or had an offer accepted. Renewing it should be straightforward unless your or external circumstances, such as the economy, change significantly. 

Remember that if any details you give when applying for the mortgage preapproval change during the validity period, you should check with your broker or lender to ensure it is still valid and renew the application if necessary. 

If you’re trying to get on the housing ladder, it might be worth getting independent financial advice, as this can help when saving and planning for the future. 

If you’re buying a home or starting the process, a financial advisor can help you develop a plan that works for your finances. Unbiased can match you with your perfect financial professional. Get started today.