Mortgage Pre-Approval: The 120-Day Rule Is Wrong

Hey guys, welcome back to another week of Mortgage Matters in Minutes. I'm your host Brett Rasmussen, owner of Mortgage Specialists. Before we get started in our video today, if you get a chance, please like below, subscribe, leave a comment below because this is how we help to educate the community in the accurate way, not necessarily in the marketing way. So today's question which we will get often probably nearly almost every single day is how long is a mortgage pre-approval good for and the reason why that's being asked is because people do Google online or real estate agents or people say don't start too early and I will tell you that's the complete wrong answer and thought process and here is the reasons why. So first of all what is a mortgage preapproval? A mortgage pre-approval means a particular lender has looked at your situation and is testifying that they've reviewed your information and what they've reviewed that you are able to obtain a loan based on certain conditions and conditions might be very detailed. our pre-approval is straight to the point one page where you might see other large national lenders have five six pages of disclaimers of what they did or did not review in regards to that. So pre-approval is a general word for either a loan officer or underwriter reviewing your situation, your credit, your income, your assets, your debts, and making sure that those meet the underwriting rules that exist as well. But here's why that question should not really even be asked because much of the time with the markets being the way they are, it might take you anywhere from one day to 5 years to buy a house. and not doing a pre-approval in that time frame can cause massive stress, headache, time frame or issues that getting a more non-advantageous loan just because you didn't prepare. So, most people online will state that a pre-approval is good for 120 days. Why 120 days? Because that's how long a credit report is good for. Here at Mortgage Specialists, we start with a soft credit check because most of the time the credit score is exactly the same on a soft credit check as a hard credit check and it gives us the same information and it doesn't necessarily ding your credit score. So, we use that as a starting point. But I can also share when we review your credit and we look at it, most people is not going to have an issue with having their credit scores drop between now and whenever they find a house. We're going to send out disclaimers on that. But in my experience over 25 years, I've never had a client's start being preapproved adversely affect their credit so harm-ly that it did not qualify for them for a loan. So people know and human nature knows if I need a loan, I need to continue to do what I've always done. So why start early then? If it's not that big of a deal, why start early? Because what we're going to look at is your credit. And maybe your credit score isn't the perfect score. And maybe we can take time to get that score up. And if the score is higher, you get a cheaper interest rate. So, that's one of the main reasons that we want to start early, but also want to be able to calculate out how much you qualify for, what payments look like, how much money you might need for closing. Because I can share with you that most people have a different understanding of how much money they need, and what their payment should be than what actually happens and what actually is real in going over the calculations with individuals. Because at the end of the day, mortgage loan and what you qualify for is all mathematical calculations. It is we're going to look at your credit. That's a formula that's used. We're going to look at your income and your debt payments. That's a formula that we also use as well. And then also look and see, do you have enough assets to cover the money that's needed for the down payment and closing costs. So, what we're really trying to do is start early to make sure you're in the right price range so that when you go and call or go and need the loan, you actually do qualify. Sometimes we have to advise people to pay down certain debts or sometimes we advise them to show more income on their tax returns, so on and so forth. So, starting with a pre-approval early is never at harm. And people so worry about their credit being pulled and that's the least of your worries and that's not going to dramatically affect your credit score. But people are told that because different algorithms for credit scores do cause more damage than necessarily the ones that are used for mortgage preapprovals. So, starting early and getting that pre-approval done. We continue every four months to extend your pre-approval here at Mortgage Specialists by just having you send in your paystub, showing us that you're still working, possibly showing verification of your assets as well. But we're not going to continue to keep pulling that credit. We're going to let that sit until you do find a house because it could be a year or could be two years or five years. Why pull a full credit report until we actually need one? So, the reason we advise you to start early is to plan for the best scenario, but also have your ducks in a row for what you need for when underwriting is requiring it. Some people will ask after they get their house under contract, what is the fastest I can close? I can close faster if you as the borrower or a borrower provides me all information timely. Much of the time when people are done negotiating their house, they're exhausted. Then we come back and ask them for paperwork, they want to take a break and sometimes it might take them weeks to get paperwork over to us. And that's what causes sometimes a delay in closing is just getting the information so we can supply it to underwriters. If you can get us that information early, much of the time we don't have to re-ask that same paperwork. So again, pre-approvals, why do they matter? Because sellers want to know a lender has looked at your situation, you qualify. Because why take the house off the market, meaning not marketing your house for sale if someone can't get a loan at the end of the day, and that's all they're concerned about. Things can change, things can happen, but they're always going to work to take the best offer that benefits the seller. Whether that's a faster closing time, higher price, someone that's all put together versus someone that hasn't done their pre-approval. So, if you're out taking a look at this video, educating yourself about how long a pre-approval lasts, forget about the 120 days. Get your application in early. have someone that's a professional review things for you and someone like us that can extend that pre-approval for years and years just in case you want to be very picky on finding the best house for you. So, I'm Brent Rasmussen, owner of Mortgage Specialists. Love to answer any questions. You can call us at 402-991-5153 or you can check us out on our website at mtg-specialists.com. Have a great rest of your week and we'll see you here next time. Mortgage Specialists. Driven. Trusted. Reliable.