I recently had a newly preapproved client ask me that question. It’s quite a timely one! Before this market, I would say that a preapproval letter used to be good for about 90 days assuming that none of the information on provided on the loan application has changed. Now-a-days, you have to factor in guideline changes and interest rates. You’re really not approved by the sales price or loan amount, it’s based on the total mortgage payment and funds for closing (down payment, closing costs, prepaids/reserves, etc.) along with any other conditions (such as having a certain amount in your savings account after closing).
Assuming that the loan program you’re preapproved with does not have guideline changes and still exists, before you write an offer on a home, I recommend that you contact your mortgage originator to make sure you’re still approved based on that home’s property taxes and current interest rates. In fact, it wouldn’t hurt to get an updated Good Faith Estimate with current rates and actual property taxes. If you’re asking the seller to pay closing costs, let your mortgage originator know so they can verify the amount will be allowed per guidelines. If you’re offering less than you’re preapproved for, your real estate agent may want to have a preapproval letter that is written specifically for the offer (especially if you’re asking the seller to pay closing costs).
Program changes? Boy, we’ve had a few. There are also changes with private mortgage insurance and various lender guidelines too. I recommend that people who are in the market right now as “preapproved” buyers, check in with their mortgage originator on a weekly basis (if you’re actively looking) and before you present that offer to make sure it meets current guidelines and that you are still qualified based on the present rate.
Don’t be surprised if your mortgage originator requires you to provide your most recent paystubs and copies of your asset accounts (where your down payment is coming from) before providing an updated preapproval letter.
Last note: Be careful when searching blogs for information on mortgage programs and guidelines. If the posts are even a few months old, the information may very well be outdated (if it was correct in the first place).
Note: I have modified this post. I had incorrect data (kind of ironic).
Great topic. Unfortunately, I find that about 80% of home buyers really never get pre-approved – as in the file has been formally underwritten. In this market it is more important than ever to ensure there is a solid approval BEFORE even thinking about making an offer on a property and getting into contracts. It also isn’t about interest rate, it is who actually can close the loan.
Sometimes I feel like I am paddling up river….
Hi Rhonda,
This is such an important topic, I attended a class on FHA financing this week and it was interesting to see how so many things can affect your credit. It’s important to keep your credit card balances below a certain level, not go a dime over your credit limits, and possibly not close credit cards. I’m just mentioning a few of the things that came up in this class.
I agree with Russ. I came away from this class thinking buyers have to “shop” for a lender based on knowledge and experience. Things change from moment to moment and the person who handles the loan has to be proactive and on top of these changes.
I also like your idea about getting a pre-approval letter specific to an offer. I often tell my buyers to get several letters, so when an offer is written, we can use the one that fits.
Hi Debra and Russ, selecting a mortgage professional by experience rather than rate is drum I often beat around here. 🙂 If you’re working with someone ethcial and professional, a competitive rate should be automatic. Credit is more important than ever.
Hi Rhonda, I was happy to see you post this and to make a comment about the length of time these letters are valid. Most of the lenders I’ve ever worked with have usually had 30 days as the timeline but occasionally we’d see longer, but not often. Lately, we have recommended that clients be in touch with their lender weekly to make sure the changes going on haven’t negatively impacted them for buying.
Reba, you bring up a good point: I recommend that listing agents request preapproval letters to be updated (no more than 2 weeks old).
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Another reason to update your preapproval: if your down payment was coming from the stock market. What a gross day with the DOW down 678. 🙁
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Another reason to re-check a preapproval letter/buyer…if their down payment/closing costs are coming from the stock market. 🙁
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