My Bank Gave Me Mortgage Pre-Approval But Now I Need Renovations

What is a mortgage pre-approval letter?

A mortgage pre-approval letter is a document from a lender confirming their willingness to lend you a specified maximum amount of money.

A pre-approval letter impresses sellers and real estate agents because it shows you’re a serious buyer with the financial ability to move forward with a purchase.

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A pre-approval can ultimately secure your dream home and save you money. An offer from someone who’s pre-approved is more valuable than one from a rival home buyer without a letter. It’s common for a seller to accept a lower offer from a pre-approved buyer over someone with no letter.

And remember, you don’t need to offer the maximum amount your letter indicates you can borrow. You should choose an amount you can comfortably afford to repay.

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Can you get denied after being preapproved for a mortgage?

Yes, you can get denied for a mortgage loan even after being preapproved for it. There are a number of reasons this could happen. For example:

  • After preapproval, new negative information could appear in your credit history, dropping your score below the lender’s qualification guidelines
  • If you lost your job prior to closing on the loan, you’d likely be denied. That’s because the lender can no longer verify you’ll be able to make your monthly payments
  • Running up too much credit card debt before the loan closes

Basically, anything that significantly impacts your financial picture between your preapproval and loan closing could change your mortgage eligibility.

Also keep in mind that a preapproval typically happens prior to beginning your home search. As such, your new home must also be approved by the lender.

For example, the loan amount can’t exceed the home’s appraised value. And if you’re getting an FHA loan or a VA loan, the new home must meet government safety standards. The presence of lead paint in an older home, for example, could derail the home-buying journey.

When should you get a mortgage preapproval?

You should get a mortgage preapproval if you’re serious about looking for and making an offer on a home within the next two months. Preapproval letters are good for 30 to 60 days, according to the Consumer Financial Protection Bureau (CFPB).

If it takes you longer than a month or two to find a home, the lender may need to update your preapproval with more recent pay stubs and bank statements. If your house hunt takes more than 90 days, the lender may also need to pull a new credit report, which may impact your credit score.

Can I Get Mortgage Pre-approval Without a Credit Check?

It’s unlikely. Initial qualification without a full credit check may be possible with some lenders; at that point, they may be interested simply in whether you have both the income to pay back a mortgage and no credit red flags. But to get full-scale pre-approval will likely require a credit check.

It’s important to know how long pre-qualification and pre-approval will be in effect. Different lenders assign different times for which their letters of pre-qualification or pre-approval are good, from 30 to as many as 120 days.

Remember that multiple checks for credit history can negatively affect your credit rating, so you don’t want to have them repeated often. For the same reason, you shouldn’t apply for it until you’re ready to start seriously home shopping. Many lenders and real estate agents can help you get a range of what you can afford in a general sense, so that you can avoid going through the pre-qualification or pre-approval process only to learn that there’s nothing in your market that you can realistically afford or want.

The Pre-approval Process

Applying for a mortgage can be exciting, nerve-wracking, and confusing. Some online lenders can pre-approve you within hours, while other lenders can take several days. The timeline depends on the lender and the complexity of your finances.

For starters, you’ll fill out a mortgage application. You’ll include your identifying information, as well as your Social Security number, so that the lender can pull your credit. Although mortgage credit checks count as a hard inquiry on your credit reports—and may impact your credit score—if you’re shopping multiple lenders in a short time frame (usually 45 days for newer FICO scoring models), the combined credit checks count as a single inquiry.

Here’s a sample of a uniform mortgage application. If you’re applying with a spouse or other co-borrower whose income you need to qualify for the mortgage, both applicants will need to list financial and employment information. There are eight main sections of a mortgage application.

1. Type of Mortgage and Terms of the Loan

The specific loan product for which you’re applying; the loan amount; terms, such as length of time to repay the loan (amortization); and the interest rate.

2. Property Information and Purpose of the Loan

The address; legal description of the property; year built; whether the loan is for purchase, refinance, or new construction; and the intended type of residency: primary, secondary, or investment.

3. Borrower Information

Your identifying information, including full name, date of birth, Social Security number, years of school attended, marital status, number of dependents, and address history.

4. Employment Information

The name and contact information of current and previous employers (if you’ve been at your current position for less than two years), dates of employment, title, and monthly income.

5. Monthly Income and Combined Housing Expense Information

A listing of your base monthly income, as well as overtime, bonuses, commissions, net rental income (if applicable), dividends or interest, and other types of monthly income, such as child support or alimony.

Also, you’ll need an accounting of your monthly combined housing expenses, including rent or mortgage payments, homeowners and mortgage insurance, property taxes, and homeowners association dues.

6. Assets and Liabilities

A list of all bank and credit union checking and savings accounts with current balance amounts, as well as life insurance, stocks, bonds, retirement savings, and mutual fund accounts and corresponding values. You need bank statements and investment account statements to prove that you have funds for the down payment and closing costs, as well as cash reserves.

You’ll also need to list all liabilities, which include revolving charge accounts, alimony, child support, car loans, student loans, and any other outstanding debts.

7. Details of the Transaction

An overview of the key transaction details, including purchase price, loan amount, the value of improvements/repairs, estimated closing costs, buyer-paid discounts, and mortgage insurance (if applicable). (The lender will fill in much of this information.)

8. Declarations

An inventory of any judgments, liens, past bankruptcies or foreclosures, pending lawsuits, or delinquent debts. You’ll also be asked to state whether you’re a U.S. citizen or permanent resident and whether you intend to use the home as your primary residence.

Most home sellers will be more willing to negotiate with those who have proof that they can obtain financing.

Mortgage preapproval FAQ

Do mortgage preapprovals affect your credit score?

Most mortgage preapprovals require a hard pull on your credit, which can affect your credit score. But the impact is usually very small. According to myFICO, one hard inquiry will take less than five points off your FICO score. (For perspective, the full scoring range is 300-850.) And if you get multiple pre-approvals within 2-4 weeks of one another, they all count as a single hard inquiry — so your score will only be dinged once.

How long does mortgage preapproval last?

Mortgage preapproval letters are typically valid for anywhere from 30 to 90 days. However, a preapproval can be updated and extended if the lender re-checks your information. The preapproval letter serves as evidence that a lender has reviewed your credit and verified your income and assets.

What’s the difference between prequalified and preapproved?

Getting preapproved is similar to getting prequalified, except a preapproval requires all the information you provide to be documented. For a preapproval, you typically have to complete a full mortgage application and maybe pay an application fee. You will then supply the lender with financial documentation like pay stubs, tax returns, and W2s, and your credit history and score will be pulled. Some sellers might also request to see your asset and bank account statements.

How much does preapproval cost?

Preapproval is free with many lenders. However, some charge an application fee, with average fees ranging from $300–$400. These fees may be credited back toward your closing costs if you move forward with that lender. However, since preapproval does not tie you to a lender, we’d recommend starting out with one that offers a free preapproval. You can always choose a new lender later on if you find a lower mortgage rate.

How long does it take to get preapproved for a mortgage?

The timeframe for getting pre-approved varies by lender. Most lenders take one to three days. Banks and credit unions may take up to 30 days. For the fastest preapproval, look for a lender that specializes in digital loan applications.

When should you get preapproval for a home loan?

Most lenders recommend getting preapproved 3-6 months before you plan to buy a home. If you foresee roadblocks for your loan (like having to improve your credit score or pay off debts), you may want to get your first preapproval up to a year prior to your home purchase. That should give you enough time to clean up your credit report and increase your down payment.

What’s included in a mortgage preapproval letter?

Preapproval letters vary from lender to lender. They typically include the purchase price, loan program, interest rate, origination fees, loan amount, down payment amount, expiration date, and the property address. The letter is typically submitted with your offer to buy a new home.

Can you change loan types after getting a preapproval?

If you need to switch loan programs after getting preapproved — from a conventional to an FHA loan, for example — you’ll likely need to start the preapproval process all over again with a new loan application. Doing this would likely delay your closing and change the interest rate and terms of your loan. Different mortgage options also have different down payment requirements. To help avoid these kinds of delays, identify your ideal loan type near the beginning of your home buying process. A knowledgeable loan officer will advise you on your best mortgage option upfront. Find a new loan professional if you’ve found they steered you in the wrong direction – for instance, you’re a veteran or are buying in a rural area and he or she suggested an FHA loan instead of a zero-down VA or USDA loan.

Will a real estate agent show homes if you’re not preapproved?

A seller’s real estate agent may not want to show a home unless you have a preapproval letter. Your own agent would likely show the property; however, most real estate agents prefer working with homebuyers who have been preapproved. The preapproval letter proves you’re a serious buyer and borrower.

Will other debts affect your preapproved mortgage amount? Yes. Mortgage underwriting depends, in part, on your other debts as measured by your debt-to-income ratio. Credit cards, auto loans, student loans, and other personal loans will factor into your DTI. If your debt-to-income ratio is too high, lenders will be wary about your financial situation and your ability to make monthly mortgage payments. They could deny your application. After getting preapproved, avoid applying for other loans or increasing your credit card balances before the home closes.

Pros and Cons of Pre-Approval

Pros of Pre-Approval

When you’re making an offer on a house, you’re far more likely to be successful if you’re pre-approved. Because the process for pre-approval is more complex, a seller considering your offer knows that a lender has already verified your financial situation and is prepared to lend you money to complete the purchase.

Cons of Pre-Approval

The process for pre-approval is much more complex. The lender will require supporting documentation from you and will independently verify the information you provide.

Indeed, pre-approval is very similar to a full application process with the exception of evaluating the property since you haven’t found that yet. Because of this, pre-approval gets much closer than pre-qualification to proving you qualify for the loan.

If you’re self-employed or have unusually complex finances, it’s especially important that you take the time to get pre-approved.

Many self-employed people overestimate their income. Lenders will use your adjusted gross income after expenses. For example, if you take in $100,000 per year, but write off $40,000, the lender will only use $60,000 to qualify. It’s better to discover these surprises before you get excited about a home to buy.

What kind of offer do sellers and real estate agents prefer?

There’s more to a home purchase offer than the amount. For sellers and realtors, these are the most attractive types of offer, ranked:

  1. All-cash offers
  2. Offers with a mortgage pre-approval letter
  3. Offers with a pre-qualification
  4. All other offers

If — all other things being equal — you are in competition with another prospective buyer who’s higher up on that list than you are, you may have to sweeten the deal by beating their offer with a higher offering price.

Speak with a mortgage specialist today.

What do I do if I’m denied for a mortgage preapproval?

The first thing to do is find out why your loan application was turned down. The most common reasons for home loan denial are high DTI ratios or low credit scores. Here are some tips for turning a mortgage denial into a mortgage preapproval.

If your DTI ratio is too high you can:

  • Pay off high-balance installment loans (like auto or personal loans)
  • Remove yourself from a cosigned installment loan
  • Ask someone to cosign on the loan with you
  • Lower your loan amount or sales price target
  • Make a bigger down payment
  • Choose a home without any homeowners association (HOA) fees

If your credit scores are low you can:

  • Pay off credit card balances
  • Add a cosigner (if you originally applied on your own)
  • Talk to a credit repair company
  • Dispute any late payments or errors on your credit report

Alternative mortgage preapproval options

If none of the tips above work to get you a standard loan, your loan officer may suggest an alternative or “non-QM” home loan product. Short for non-qualified mortgages, these mortgage programs offer temporary lending solutions. One caveat: You’ll need a bigger down payment and should expect to pay a higher rate for these types of loans.

Some of the most common non-QM loan types include:

Stated income loans. Instead of tax returns, lenders allow you to “state” your income and support it with 12 to 24 months’ worth of personal or business bank statements.

No-doc loans. These loans catered to investment property buyers rely exclusively on the estimated rental income to qualify.

Asset depletion loans. High net worth borrowers may be able to convert the cash value of an asset into income.

Recent major credit issue loans. Borrowers with large down payments and solid income may be able to take on a non-QM loan one day after completing a bankruptcy or foreclosure. Standard loan programs require a two- to seven-year waiting period.

How to Put a Stop to Unsolicited Credit Offers

Last Updated: March 21, 2022 If your mailbox could talk, what would it say? “Hey Susan, here’s more coupons for your favorite Moose Tracks ice cream you can’t get enough of, an overdue bill for your monthly $50 gym membership, and two new pre-approved loan offers from financial institutions you never requested.”

  • Janet Veach

  • 4 min read

  • Mon, Mar 21, 2022

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