Don’t Let Outdated Preapproval Add to Your Home Search Woes

As mortgage rates continue their stomach-turning rise and serious shoppers compete for a limited supply of homes, would-be home buyers may be struggling to make a successful offer before their mortgage preapproval letter expires.

According to Zillow, more than half of home buyers this year reported making two or more offers before closing on a home — and that’s only after finding one that meets their needs, which takes an average of eight weeks, according to the National Association of Realtors’ 2022 Home Buyers and Sellers Generational Trends Report. For some, the search lasts longer.

A typical letter is valid for 90 days, though that can vary by lender. This time-sensitive document from your lender tentatively estimates how much it is willing to lend you, and on what terms. It demonstrates to the home seller that your mortgage is likely secure, so the deal can close.

If your home search is outlasting your preapproval window but you’re committed to the hunt, you can relieve some pressure by renewing your preapproval with your lender. These tips will help you protect your mortgage preapproval and stay on top of your homebuying budget.

Keep your personal financial documentation on hand and get in touch with your lender before your mortgage preapproval window closes.

Your preapproval letter should either spell out the expiration date or list how many days the letter is valid (most likely 90 days or fewer). If there is any doubt, call or email your point of contact at the lender to confirm the date.

Reach out to the mortgage loan officer listed on your letter and explain that you want to renew your preapproval. Since the lender already has your basic information, the re-application process shouldn’t take as long as when you initially applied for preapproval. According to Bank of America, it can take up to 10 business days to receive a new preapproval letter, so plan ahead. This way, you won’t experience a gap where you’re actively home shopping but haven’t been preapproved. This will also help ensure that the rate and total loan amount estimates you’re working with are timely and realistic.

You’ll have to provide current versions of your preapproval documentation. This includes your most recent pay stubs and asset statements for your bank accounts, retirement accounts and brokerage accounts. If you’ve experienced a major life event that will impact your borrower profile, like a divorce, you’ll want to update your lender. Your credit score will also take a temporary dip, since this reassessment involves a hard credit pull.

Think of the process as a “refresh” instead of an “extension,” since the amount and terms of your preapproval will likely change with your new letter.

Applying for a new preapproval letter comes with the opportunity to explore different kinds of loan options with your lender, says Sonu Mittal, head of mortgage at Citizens, based in Dallas. For example, adjustable-rate mortgages are becoming increasingly popular as borrowers bet on long-term rate trends. The rates for ARMs are typically lower during the introductory period and then change with the market.

Some lenders advertise loan programs that come with lower or temporarily suppressed rates. For example, New American Funding offers a “buydown loan” that allows borrowers to pay 1% or 2% less than the 30-year fixed rate for their first few years in the home, or a combination of those discounts.

If you choose to switch lenders, you’ll have to shop around again and start the application process over from scratch.

“If someone got a preapproval a couple of months ago, the probability of them being able to get it renewed is very high,” Mittal says. Still, Mittal says, even a borrower who has kept their finances in good shape could see their budget constrict with a new preapproval letter months later. Rising interest rates are making home loans more expensive, so borrowers renewing a preapproval may see a lower total mortgage amount for the same monthly payment. If you’re having a hard time finding a home within your preapproved budget, you may need to make some concessions.

“I feel like a lot of millennials are trying to make a move into the dream home from renting,” says Steve Ploetz, a Realtor with Century 21 Award in Carlsbad, California. Some home buyers may find that a smaller house, condo or property outside of a preferred neighborhood makes sense as a stepping stone to their real estate dreams. Limiting the scope of your search to what you can truly afford — instead of what ticks the most boxes on your wish list — may present more opportunities.

It’s a mistake to think of a preapproval letter as a static document, Ploetz says. “We’re recommending that our clients touch base with their lender every other week,” he says, so that the borrower can get an updated perspective on what they qualify for and how rates are responding to recent changes in the market. Otherwise, Ploetz says, you risk working with outdated information and sabotaging your search.