When you are house hunting, knowing what you can afford and the amount of mortgage you are qualified for will help you find the right home for the right price. If you have been saving a down payment and are planning to purchase a property in the next three to six months, getting a pre-approved mortgage should be your next step.
What is a pre-approval?
Before you even meet with a realtor or start looking at homes, it’s important to set realistic expectations in terms of affordability. The last thing you want to do is allow yourself to fall in love with a home that you can’t afford. Pre-approval will help you figure out what you can and should consider; it will also give you the advantage of being able to act quickly when you find your perfect home and allow you to place an offer with confidence.
A pre-approval will let you know the amount of mortgage you qualify for, your monthly payments and the interest rate that will be held for you for a specified period of time (often 120 days). Being locked into an interest rate will protect you from any increases that may occur from the time of your pre-approval to the time you purchase a home, potentially saving you thousands of dollars in interest payments.
Despite being pre-approved by a lender, it is still important to be realistic and make sure you can afford the pre-approved amount by reviewing all of your homeownership expenses and monthly budget.
How to get pre-approved
Getting pre-approved for a mortgage loan is the beginning of the application process for the mortgage. To provide you with a pre-approval, your mortgage broker will represent you to the lender, who will review your income, down payment, assets and liabilities and examine your credit report. For a full pre-approval, all of this information and documentation is necessary for the lender to qualify you, so be sure you do not make significant changed after the process is underway (for example, changing jobs, adding debt, co-signing another loan or spending your down payment savings elsewhere).
Pre-approval is not mortgage approval
Keep in mind that not all pre-approvals are the same, and that a pre-approval is not a mortgage approval. Some are just a simple rate guarantees subject to conditions and a later approval. In instances where the mortgage is insured through CMHC or Genworth, the borrower and the property have to be approved again by them, so even if the lender likes the deal, the insurer has the ability to accept it or reject it. However, if you have been pre-approved and your financial condition has not changed, the final approval process should be quick and easy.
Keep in mind, even with a pre-approval, it is a good option to include a financing condition in your purchase offer when you find the home you wish to buy; your property will still need to be assessed by the lender to complete the final mortgage approval. Your mortgage broker will assist you in collecting all the necessary documents so you can remove your financing clause on the offer to purchase on time.
