Can Interest Rate Change After Pre Approval?

A mortgage pre-approval represents a preliminary assessment from a lender regarding a borrower’s potential borrowing capacity. This assessment is based on a review of financial information, including income, assets, and credit history. While a pre-approval provides an estimated loan amount, the interest rate quoted during this initial stage is typically an estimate and is subject to change. Understanding this dynamic is important for home buyers.

Understanding Pre-Approval and Interest Rates

A mortgage pre-approval serves as a conditional offer, providing a snapshot of a borrower’s financial standing. It is not a final commitment or a locked-in loan offer, especially since a specific property may not yet be identified. The interest rate communicated during pre-approval reflects the prevailing market rates on the day the assessment is made.

This rate is considered a “daily rate” and is not guaranteed for the future. Broader economic conditions significantly influence mortgage interest rates. Actions by the Federal Reserve, such as adjusting the federal funds rate, can indirectly affect market rates. Inflation expectations and the bond market, particularly the 10-year Treasury note yield, also directly influence mortgage rates.

Common Reasons for Rate Fluctuations

Several factors can lead to an interest rate changing after a pre-approval has been issued but before a formal rate lock is secured. Economic shifts and financial market movements are primary drivers, causing daily adjustments in mortgage interest rates. Unexpected changes in economic data, such as inflation reports or employment figures, can prompt lenders to adjust their pricing models.

Changes to a borrower’s financial profile between pre-approval and loan closing can also impact the final rate. A decrease in a credit score, due to taking on new debt or missing payments, can signal increased risk to a lender, potentially resulting in a higher interest rate. Significant changes to a borrower’s debt-to-income ratio or employment status may alter the lender’s risk assessment.

The specific details of the loan itself can evolve, affecting the interest rate. If a borrower changes the loan amount, opts for a different loan term (e.g., from a 30-year fixed to a 15-year fixed mortgage), or switches between loan product types, the initially quoted rate may no longer apply. Each modification can trigger a re-evaluation of the loan’s pricing. Property characteristics, such as its type (e.g., a condominium versus a single-family home), its location, or the appraised value, can also influence the final interest rate.

Securing Your Interest Rate

To protect against interest rate increases, borrowers can secure a mortgage rate lock. A rate lock represents a lender’s commitment to honor a specific interest rate for a defined period, usually after a property has been identified and the formal loan application is submitted. This commitment begins once the borrower indicates their intent to proceed with the specific loan terms.

Borrowers can request a rate lock after their loan application is complete and underwriting has commenced, not at the pre-approval stage. The duration of these locks varies, commonly ranging from 30, 45, to 60 days, providing a window for the loan to close. If the loan does not close within the specified period, the rate lock may expire, necessitating a re-lock at current market rates, which might involve an extension fee or a higher rate.

It is important for borrowers to carefully review the terms and conditions associated with any rate lock agreement. This includes understanding any potential fees for extending the lock period or the circumstances under which the rate might still change, even if locked. The agreement outlines the precise duration of the lock and the conditions under which it remains valid.

Navigating Potential Rate Changes

Maintaining financial stability after receiving a pre-approval helps ensure the quoted rate remains attainable. Borrowers should avoid taking on new debt, such as car loans or large credit card balances, and strive to keep their credit scores stable. Maintaining consistent employment without significant changes to income or job status is advisable.

Proactive communication with the lender is important if financial changes occur or if there are concerns about interest rate movements. Lenders can provide updates on market conditions and explain how personal financial shifts might impact the loan terms. It is also beneficial to thoroughly review the pre-approval letter for any stated conditions or disclaimers regarding the interest rate, as these documents often highlight potential variability.

If a rate lock is not in place and market rates have increased, comparing offers from multiple lenders might be an option before committing to a final loan. Should the interest rate change, borrowers should re-evaluate their monthly payment and overall affordability. This assessment helps ensure the new payment aligns with their financial plan and budget.