How Long Is a Home Loan Preapproval Good For?

A home loan preapproval serves as a preliminary assessment from a lender, indicating the amount of money they are willing to lend you for a home purchase. It is based on a review of your financial standing, including income, assets, and credit history. Generally, a home loan preapproval remains valid for a period ranging from 60 to 90 days.

Standard Preapproval Validity Periods

A home loan preapproval is typically valid for 60 to 90 days. Lenders establish these expiration periods because a borrower’s financial situation can change rapidly. Factors such as employment status, income levels, and outstanding debt balances can fluctuate, directly impacting a borrower’s ability to repay a loan.

A shorter validity period allows lenders to base their offer on the most current financial data available, mitigating the risk of significant changes occurring before a home purchase is finalized. While 60 to 90 days is common, some lenders might issue preapprovals for a shorter 30-day term or, less frequently, for up to 120 days, depending on their internal policies and current market conditions.

Circumstances Requiring an Update

Even if the stated validity period of your preapproval has not yet expired, certain events or changes in your financial situation necessitate obtaining an updated preapproval. A significant shift in employment, such as a job loss, a change in job type, or a substantial reduction in income, directly impacts your debt-to-income ratio, a key metric lenders use to assess affordability. Similarly, a considerable increase in income might also warrant an update to reflect a higher borrowing capacity.

Changes to your credit profile require an updated preapproval. Taking on new debt, such as a car loan or significant credit card balances, can negatively affect your credit score and increase your debt load, altering eligibility or interest rates. Conversely, a substantial improvement in your credit score due to diligent payments could lead to more favorable terms. A substantial withdrawal from savings intended for a down payment or closing costs, or a large, unexplained deposit, would require re-verification of assets.

Market conditions can also influence the necessity for an updated preapproval, particularly significant shifts in prevailing interest rates. A preapproval is typically based on the interest rates current at the time of its issuance, and a notable rise in rates could reduce your purchasing power, making the original preapproval amount no longer viable. Lenders may also reassess your preapproval if there are drastic changes in home values within your target market, as this could impact the loan-to-value ratio for a potential property.

Steps to Update a Preapproval

Updating or renewing your home loan preapproval involves a straightforward process, primarily initiated by contacting your original lender. It is advisable to reach out to your loan officer or lender representative as soon as you anticipate the need for an update, whether due to an impending expiration or a change in your financial circumstances. Inform them of your situation and express your desire to extend or re-evaluate your preapproval.

The lender will typically request updated financial documentation to reflect your current standing. This may include recent pay stubs, bank statements, and potentially updated tax returns if a new tax year has begun since your initial application. Providing these documents allows the lender to re-verify your income, assets, and debt obligations, ensuring their assessment of your borrowing capacity remains accurate.

Upon review of the updated information, the lender will issue a revised preapproval letter. This new letter will reflect any changes in your financial profile or market conditions, providing an updated and accurate representation of the loan amount you are qualified to borrow. This updated document is then ready for use as you continue your home search.