How Long Is A Preapproval Letter Good For (And Why)?

Exact Answer: 90 Days

A mortgage pre-approval letter is a letter sent by the mortgage lender to a borrower. This letter primarily states the amount that the lender agrees to lend to the borrower and its underlying terms and conditions. In other words, it summarises the contract and all the facets of the agreement.

This mortgage pre-approval letter then can be presented to the house seller. It proves to the seller that the buyer is serious about the deal and presents him in a far better position than his competitors. This increases his chance of buying a house.

How Long Is A Preapproval Letter Good For?

Type of LetterTime Good for
Pre-approval Letter90 Days

A pre-approval letter usually carries a shelf life of about 90 days. This document issued by the mortgage lender is in consideration of the financial position and status of the borrower. It helps the borrower to prove his credit capabilities to the house seller.

However, the duration for which a pre-approval letter remains valid is flexible. It can change from lender to lender and widely depends on the financial conditions of the mortgage borrower. Generally, they are valid for a minimum of two months and a maximum of three months.

A mortgage pre-approval can be applied when a person has met all his requirements. The person has to submit all his required legal documents to the lender. Getting a pre-approval letter may take anywhere between a day to 10 days, subject to the condition that the lender is satisfied with the finances of the person.

The bank balances of different people are different. Moreover, the credit profiles of two people with nearly the same balance may be very different. Thus, the lender would take his time for conducting the proper scrutiny and verification of those documents.

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When the current mortgage pre-approval letter is no longer valid, the borrower or prospective house purchaser can always go for a new letter. Moreover, they can choose their desired lender, either continue with the previous one or go for a new one. Although, it must be kept in mind that getting more than one pre-approval letter can be disadvantageous for your credit score.

Why A Preapproval Letter Is Good For That Long?

The financial conditions of the borrower are subject to changes within few months. There is rarely any consistency concerning people’s savings or incomes. There is always the chance of windfall gains and unexpected losses.

A Preapproval letter with a moderate range of 60-90 days can be both good or bad for either party depending on the conditions.

If the financial condition of the borrower changes favourably after the good-for time, they would be in an advantageous period. Thus, borrowers will be always optimistic and in hope for a better financial condition in future, will get settled for two to three months period.

Conversely, the mortgagor or lender will be always pessimistic and will plan for the worse. They would be fearful of giving pre-approval letters with a long-term good-for period. The mortgage lender will be cautious and reluctant to go for more than 90 days.

It may also be possible that there is no change in the financial conditions of the person mortgaging. In such a scenario, the borrower would still require a new pre-approval letter, once the valid period for his first letter ends.

A mortgage pre-approval letter that is valid for less than two months can also be of less use. It would take the borrower a few months to negotiate for the home and when the deal would be final, the letter might be of no use. Thus, a pre-approval letter of at least two months of validation is appropriate.

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Conclusion

A mortgage pre-approval letter is generally good for two to three months. The determination of this time depends upon the financial capacity of the borrower; his assets and liabilities. It also depends on the will of the mortgage lender.

This letter is very beneficial when purchasing a house. The pre-approval letter shows this seller that the borrower is interested and is capable of affording their house. This letter helps the prospective home buyer to be in a comparatively advantageous position over his competitors.

References

  1. https://ecommons.udayton.edu/uhp_theses/302/
  2. http://jstor.org/stable/26915488
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