Getting pre-approved can be a vital step to the home-buying process! A pre-approval means that a lender has stated in writing that you qualify for a mortgage and what amount, based on your current income and credit history. A pre-approval usually specifies a term, interest rate and mortgage amount and is typically valid for a brief period, assuming various conditions are met.
Be careful not to confuse a pre-approval with a pre-qualification. You can easily get your mortgage pre-qualification online from a site like www.MortgageMeNow.ca, which will help you determine what you might qualify for. However, the major difference is that to be pre-qualified you simply submit your estimated financial figures to give you a ballpark of what you might qualify for.
During the pre-approval stage, you submit and verify your financial history. The benefit of getting pre-approved versus just pre-qualified, is that pre-approval will help speed up the process when you do find that perfect home, in addition to giving you a much better understanding of the actual home price you can afford.
Overall, pre-approval can help you to determine three very important things:
- The maximum amount you can afford.
- The monthly mortgage payment associated with your price range.
- The mortgage rate for your term.
Not only does getting pre-approved make the search easier for you, but it also helps your real estate agent find the best home in your price range. Temptation will always be to start looking at the very top of your budget, but it is important to remember that there will be fees, such as mandatory closing costs, which can range from 1 to 4% of the purchase price.
In addition, while getting pre-approved doesn’t commit you to a single lender, it does guarantee that the rate offered to you will be locked in from 90 to 120 days, which helps if interest rates rise while you are still shopping. If interest rates decrease, you would be offered the lower rate.
Finally, when it comes time to purchase, having a pre-approval lets the seller know that securing financing should not be an issue. This is extremely important for competitive markets where lots of offers may be coming in.
It is important to keep in mind that even if you do have a pre-approval, you need to ensure to protect it until the purchase has been completed. To ensure you don’t jeopardize your potential mortgage, be sure you don’t quit or change jobs, buy a new car or trade up, transfer large sums of money between bank accounts, leave your bills unpaid or open new credit cards. You do not want your financial or employment details to change at all until you have closed on the new mortgage.