You may have heard about the power of pre-approval when it comes to buying homes, especially if you’re looking to buy quickly in a hot job market. Being pre-approved from a bank can save you a lot of time – and it lets the seller know you’re seriously interested in purchasing the home.
Before you get pre-approved, make sure you complete the process of checking your credit score and getting your financial house in order. This means clearing up any black marks on your credit and paying down as much debt as you can (for most people, this means lowering credit card balances). It’s also smart to check current mortgage rates; sometimes when rates rise, prices for houses reduce.
The average daily mortgage interest rate for Tuesday, January 16, 2024 is 6.77% for a 30 year fixed rate. The rate rose 0.08% from the last update on January 12, 2024 and rose 0.13% from December 2023. This information is sourced daily from correspondent, retail, and wholesale lenders located in the United States.
The average daily mortgage interest rate for Tuesday, January 16, 2024 is 6.00% for a 15 year fixed rate. The rate rose 0.05% from the last update on January 12, 2024 and fell 0.15% from December 2023. This information is sourced daily from correspondent, retail, and wholesale lenders located in the United States.
What is mortgage pre-approval?
The pre-approval for a mortgage comes from your lender (bank). Many real estate agents will suggest getting pre-approved when you express serious interest in purchasing a home. When you start the pre-approval process, your lender will provide you with a list of documentation you’ll need to prove your income and ability to pay on a loan. The pre-approval number will show the maximum amount the bank will approve you when you’re ready to initiate a mortgage.
- Mortgage pre-approval documentation typically includes:
- Proof of income and assets (pay stubs, deed to current home if applicable)
- Proof of current large expenses, like car loan payments and student loan installments
The pre-approval does require a credit check, so your score may take a slight dip as the result of the bank’s inquiry. However, if you end up using the pre-approved loan to purchase your home, this is a negligible concern.
How Long Does a Pre-Approval Last and When Should You Apply?
As mentioned above, a pre-approval for a mortgage can really help you speed along the process when you’re serious about purchasing a new home. Banks typically provide 30, 60, or 90 day validity on approval letters, so if your time runs out and you don’t have an offer accepted, you’ll have to renew your pre-approval with your bank.
A pre-approval is an expectation in the current market. Not only will the seller and their representation expect you to have it, but most real estate agents will as well – and they’ll want to see the letter.
The pre-approval letter will also include the terms of the prospective loan, such as the term of the loan and other conditions to look out for, such as your inability to rent a room (some loans have this clause). Once your offer is accepted, you’ll enter a formal underwriting process.