Preapproval to Final Approval (3 Weeks to 3 Months)

Typically, the single, biggest delay in this final stage is scheduling an appraiser. This alone may consume two weeks of the three-week window. Not to worry, part of this time will be used to schedule a home inspection and have an opportunity to do your due diligence on the property. Finally, there’s usually another final week of paperwork to finalize and produce for the titling company. That’s why, generally speaking, it takes at least a month from the time your offer is accepted until you can close on the deal. Here are some of things you should keep in mind to get the best outcome for your final mortgage approval.

 

Preapproval has an Expiration Date

This is, arguably, the only downside to starting the preapproval process as early as possible. Once it’s completed, you’ll only have a certain amount of time—typically 60-90 days—that the preapproval is good for. Now, this doesn’t have to be a huge issue in that you can typically get renewal for a preapproval loan by submitting a few updated documents.

So long as you didn’t get a loan preapproval prematurely, you may come up against this expiration date because you couldn’t find the right property in the right location at the right price and without losing the property to another buyer. This type of problem has become more common in recent years due to low inventory in a variety of real estate markets. Knowing that you can work with your home lender to quickly and reliably renew the loan preapproval can help overcome this frustration and finally find the perfect spot.

 

Last-Minute Hiccups for Final Mortgage Approval

Know, too, that preapproval is not final mortgage approval, and things can still go sideways, pretty much right up to the day of closing. Often, these are little hiccups that simply need follow-up documentation, but it can still be somewhere between mildly inconvenient to majorly stressful—or even costly financially speaking, if it delays the closing date.

What sort of hiccups are we talking about? A change in income, or even just the source of your income, can look like a red flag to home lenders and their underwriters who are charged with verifying the borrower’s assets and sources of income. Borrowing a large sum of money to make the down payment without informing the lender of this newly acquired debt is one common mortgage fraud strategy. At the same time, it’s also common for a job promotion to be part of the calculation for someone who’s looking to buy a home. When the first new paycheck hits the same account that you’re using to make the down payment, this can raise a false red flag that may require that you verify this source of income by signing another document.

This is the over-arching reason why it’s so important to have reliable means of communication with the mortgage lender/broker. These types of hiccups can be more readily anticipated and more readily addressed when everybody starts on the same page and stays that way throughout the process. It’s easier said than done, but as long as you don’t have multiple points of failure, you should be able to get from preapproval to final mortgage approval and closing without lengthy delays.

 

Other Mortgage Timeline Resources

We’re not naive enough to think that we’re the only ones who have tried to provide this kind of resource. We think our timeline offers a great combination of detail and clarity, but here are the approaches taken by:

Money Magazine

Home Buying Institute

Freddie Mac

 

From Prequalification to Preapproval (1 Week to 2 Months)

Once you’ve chosen—or even before you’ve chosen—a mortgage lender, you’ll start the prequalification to preapproval process for getting your home mortgage. It can be easy to get these terms confused if you don’t use them everyday, but we’ll try to explain the difference in a way so you can keep it straight in your head. Home loan prequalification is a back-of-the-napkin-type calculation made from numbers you self-report to a home loan officer. Home loan preapproval is a formal declaration from the home lender that they have documented the relevant financial information and how much you should be able to get approved for.

 

Prequalification vs. Preapproval

So, the essential difference is that, with preapproval, all your documentation is now in place, and you can look to make an offer with confidence or, better yet, look to get an inspection, appraisal, finalize the loan, and close on the property. The importance of prequalification and preapproval letters is largely dictated by the conditions of your local real estate market and how your actual search ends up going. In a seller’s market, there’s a good chance you’ll end up competing with other buyers and have to quick decision on tight deadlines. So, on the one hand, you’ll hear that having a preapproval letter makes your offer as a buyer look more attractive dollar-for-dollar than someone who only has a prequalification letter.

 

Should You Wait? Can You Wait?

The thing is this takes time, and even prequalification can be important when entering the market as a buyer. Many sellers won’t even entertain an offer without a prequalification letter. Once you’ve had that initial conversation and chosen a mortgage lender, it’s hard-to-impossible NOT to start seeing what’s out there and looking at properties. Once you start looking, you should be prepared for the possibility that lightning strikes and that you find your dream home on the very first try. It’s just as likely that you’ll end up visiting dozens of properties, but you never know. For this reason alone, you should think about asking for a prequalification letter as soon as possible. In fact, you can do this before you’ve made a final decision about which mortgage lender you’re going to work with. Once you’ve discussed your basic financial information, most lenders will issue a prequalification as a way to get their foot in the door, but you can continue to have discussions and take meetings with other lenders.

At the end of the day, the goal of prequalification to preapproval is to prove to the seller that you’re a serious buyer who’s able and intent on closing. So, yes, preapproval is better prequalification, and you should start working on the preapproval as soon as you choose a mortgage lender to work with, but that doesn’t mean you should wait before looking at a home and, potentially, even making an offer.

 

So, How Long Does Prequalification to Preapproval Take?

It can take anywhere from a week to a couple months. This depends somewhat on the rules and regulations of the home lender, but even more so on the complexity and the available documentation of your financial information. Here’s one common example: It’s a lot easier to get home loans approved when they’re based on W-2 employee income that goes back several years than, say, someone with a relatively new history as a 1099 self-employed contractor. It’s easier to verify and easier to calculate the risk of income loss. This isn’t to say that you can’t get a home loan, or that it’ll necessarily take 8 weeks to get through the preapproval process if you’re a 1099 contractor, but it is one of dozens of potential complications.

Choosing a Mortgage Lender (1 Week to 1 Month)

Choosing a mortgage lender is one of the most important decisions for any real estate purchase. Once you make this choice and find a home to fall in love with, you’re likely going to feel like you’re just along for the ride and trying to keep up with a crush of decisions and paperwork in trying to get to closing with as few headaches and ancillary costs as possible.

The good news is that you generally only need about a week to a month to figure out who’s going to work for you. It really depends on how much research you’ve already done and how many phone calls/meetings you have time to take. Some homeowners use the existing relationship with their commercial bank to skip over a wider search for mortgage lenders. This can save you time and hassles, but it could also cost end up costing you thousands of dollars by missing out on a more desirable home loan.

 

Things to Compare when Choosing a Mortgage Lender

 

  • Terms and Structure: The most important thing to understand is the basic terms and structure of the loan. Most homebuyers opt for a 30-year fixed loan. Adjustable rate mortgages are known for being especially risky and for their role in the economic and housing market collapse of 2008. The first test of any prospective mortgage lender/broker should be gathering your basic financial information, laying out the reasonable options, and then clearly explaining what type of home loan would work best for you and why.

 

  • PMI Terms: PMI is the insurance you pay to protect the lender from default and foreclosure, while the property remains a valuation risk. Thus, the big advantage of making at least a 20% down payment is that you don’t need PMI on the mortgage. There have been big changes to PMI terms over the last several years. FHA loans in particular may have strict and unfriendly PMI terms, but even non-FHA loans may have different rules than in the past for loan-to-value ratios and timeline qualifications for removing PMI from your mortgage payment.

 

  • Interest Rate and APR: Once you know you’re making an apples-to-apples comparison, this is sort of the score sheet. The interest rate is just what it sounds like and can have a bigger-than-expected effect on your mortgage payment and the total cost of the mortgage. It’s also a moving target that depends on the market for home loans just before the loan is finalized and the interest rate can be “locked in.” The APR is, arguably, an even better indicator as it takes into consideration loan fees and closing costs to generate a total annual percentage rate for the loan.

 

  • Closing Costs and Delays: Closing costs and loan fees will likely get discussed along the way, but it’s pretty much never too early to discuss the closing process. Ask what sort of documentation will be needed and what the most common causes are for delays in closing—delays which can be costly to the buyer. If you have a target month in mind, discuss a specific timeline. If we’re trying to buy a home and close in June, when would need to have an appraisal and complete the approval process? This can help you choose a lender and recognize any potential obstacles before it’s too late in the process to do anything about it.

 

Starting the Clock on Choosing a Mortgage Lender

Wait until you’re serious about choosing a lender before authorizing anyone to do a credit check. Here’s why: Your credit gets dinged whenever someone runs a credit check, but with this caveat. FICO allows multiple lenders to ask for and receive your credit report for a 14-day window and your credit will only get dinged the once. This can also be a good way to acknowledge in your own mind that it’s time to get serious about choosing a lender and potentially buying a home or real estate property.

 

Working with a Mortgage Broker

What happens if you simply don’t have the time to do this research when choosing a mortgage lender? This is one of the best and most common reasons to work with a mortgage broker, who will quickly size up your financial situation and real estate goals. The broker can then make some recommendations and work with the preferred lender to approve your mortgage. Now, you’ll obviously still have to search for and choose a mortgage broker, but finding a trusted broker is usually a lot easier than talking about the legalese and different programs that are available from a dozen, or so, different lenders.