How Long is a Loan Approval Good For?

Getting approved for a loan can be an exciting yet stressful process. You submit your application, provide documents, go through credit checks and anxiously await the lender’s decision. Finally, you get the news – you’re approved! But then you may wonder how long will this approval last?

I’ve helped many clients through the loan application process In this article, I’ll provide a detailed overview of loan approvals, explain what factors determine how long an approval is valid for, and give tips on what to do before your approval expires

What is a Loan Approval?

When you apply for any type of loan – whether it’s a mortgage, auto loan, or personal loan – the lender reviews your application and determines if you meet their criteria to borrow money. This process is called underwriting.

If the lender concludes that you’re eligible for the loan, they will issue an approval or commitment letter. This formal document states that the lender is willing to lend you up to a certain amount, pending any final requirements.

Receiving an approval letter doesn’t necessarily mean you’ve secured the loan. There may still be additional steps needed before closing, such as providing more documents or having the property appraised.

How Long are Loan Approvals Valid?

Unfortunately loan approvals are not open-ended. Lenders will specify an expiration date, which is known as the rate-lock period. This is generally 30 to 90 days.

Some key factors determine the length of time an approval is valid:

• Type of Loan: Mortgages often have longer rate-lock periods of 60-90 days. Auto loans may only be good for 30 days.

• Lender Policy: Each financial institution sets their own timeframe for approvals. Some may be more rigid while others are flexible.

• Market Conditions: When interest rates are steady, lenders extend the rate lock. If rates are volatile, shorter lock periods protect lenders.

• Borrower Profile: Borrowers with excellent credit and financials may get longer rate locks than higher risk applicants.

• Locked vs Floating Rate: Locking your rate early on guarantees it won’t change until closing. Opting for a floating rate means it’s subject to fluctuations.

During the underwriting process, be sure to ask your loan officer how long your approval will be good for. This helps avoid surprises down the road.

Why Do Loan Approvals Expire?

There are a few key reasons why loan approvals cannot remain open indefinitely:

• Applicant’s Financial Profile Could Change: Income, employment, or credit score may change during the loan process, affecting eligibility.

• Lending Market Conditions Fluctuate: Interest rates and loan guidelines shift over time. An outdated pre-approval may no longer reflect current terms.

• Lengthy Loan Process: Drawn out home purchases may require updated documentation to show the borrower is still qualified.

• Mortgage Investor Requirements: Loans that will be sold to investors may require a rate lock expiry to comply with buyer standards.

While frustrating if your approval lapses, expiration periods protect lenders from taking on loans that no longer meet their criteria.

What Happens When a Loan Approval Expires?

If your approval period runs out before you complete the final loan steps, unfortunately you do not have an active loan approval anymore. However, this does not mean you have to start over from scratch.

Here’s what typically happens:

• The lender withdraws conditional approval offer.

• Any rate lock guarantee disappears, meaning your rate could now change.

• You’ll need to re-submit updated documentation to show your current financial situation.

• Your new loan terms may differ from the initial approval.

Essentially, the loan process resets and you go back into underwriting. Thankfully, this is usually quicker than the first go-around. Be aware though that if conditions have changed, you may not qualify for the same loan terms.

Tips to Avoid Approval Expiration

I recommend taking proactive steps to prevent your hard-earned loan approval from going stale:

• Understand the Validity Period: Ask upfront how long approval lasts so you can plan accordingly. Mark your calendar!

• Be Ready to Move Quickly: Have all required documents ready to go for a fast closing. Slow responses can jeopardize loan approval.

• Get Rate Lock Extension: Request longer rate locks from the lender if allowed. There may be a small fee for this.

• Provide Updated Documents: Submit new paystubs, bank statements, etc. before expiry so underwriting is seamless.

• Shop Early: Start shopping as soon as you’re pre-approved, not at the last minute. This builds in buffer time.

• Ask for Exceptions: If approval may lapse right before closing, request exceptions from the lender.

With proper planning and communication, you can avoid the headaches of a stalled loan approval. Just be sure to clarify timeframes upfront and have contingencies ready in case anything changes.

FAQs about Loan Approval Duration

How long is a mortgage approval good for?

Mortgage approvals are usually valid for 60-90 days. Ask your lender as this varies. Longer rate lock periods may be available for a fee.

What happens if I don’t use a loan approval?

Nothing happens if you don’t end up using a loan approval. It simply expires after the set timeframe. The hard credit check may temporarily impact your score but it will fade.

Can I extend my expired approval?

You cannot extend an expired approval, but you can easily restart the process and get re-approved quickly. Some documentation may need updating but you likely don’t have to begin from scratch.

Do pre-approvals expire?

Yes, pre-approvals for mortgages, auto loans, and other lending products do expire after 30-90 days typically. They are contingent approval offers with a limited shelf life.

The Bottom Line

Loan approvals provide you with a green light to move forward securing financing – but only for a limited period. While expiration periods are a nuisance, they do protect both the borrower and lender from changing circumstances.

The best defense is understanding upfront how long your approval will last, completing requirements efficiently, asking for exceptions if needed, and re-submitting updated documents before it lapses. With a proactive approach, you can turn that approval into a signed loan agreement.