Whether you are a new homebuyer or already in the market, it is very helpful to get a pre-approved mortgage. Not only will doing this give you peace of mind, it can help your offer stay out from the crowd in a multiple-bid situation.
A pre-approval is when your bank or mortgage lender examines your current financial situation to determine how much you can afford to borrow and will give you a realistic idea of what your monthly payments would be. Some people avoid getting a pre-approval because they feel they already know how much they can afford— or that a money fairy will appear when they find the property of their dreams. Often when people don’t get a pre-approval they find themselves in unsuccessful bids due to financing falling through which leaves both the buyer and the seller in an extremely disappointing situation. In other cases, buyers become “house rich and cash poor” meaning that they have no money because it is all put into their house payments. It’s worth it to take the time to get pre-approved so that you can begin your house-hunting journey on solid financial ground.
With a pre-approved mortgage you will have an amount in mind while house hunting. Instead of scrambling to see every open house in the neighbourhood, you can focus your search on homes that fit into your predetermined price range. By comparing similarly priced homes, it will be easier to gauge the value of each property and find the one that’s right for you. Anyone who has experience buying during a period of double-digit interest rates already knows the value of obtaining a pre-approved mortgage with a locked-in mortgage interest rate. These are usually guaranteed for 90-120 days and in the event that mortgage interest rates decrease during this period the rate in the pre-approval will be lowered accordingly. Be sure to check this with your lender.
The main reason to lock in your rate is to protect yourself in case rates go up so be sure to ask about it. Here’s how it works: On a $100,000, 25-year mortgage, an increase of 1% to the rate would add approximately $72 to your monthly payments. That’s over $800 in a year that could have gone towards something a little more fun, like a weekend getaway. Without a pre-approved mortgage, a sudden increase in mortgage interest rates could mean you no longer qualify for your dream home.
It’s easy - Whether you decide to use a mortgage consultant or your preferred bank, the process of getting pre-approved is fairly straightforward. You’ll be asked to provide your financial information, including all assets, liabilities and proof of income as well as the amount you have available for a down payment.
After reviewing your financial situation, the lender will determine the maximum mortgage amount you qualify for and lock in a mortgage interest rate. Prequalification certificates normally last for 90-120 days. If you don’t buy a home within this timeframe, you may renew your agreement at the going interest rate when your guaranteed rate expires.
Homebuyers with a pre-approved mortgage have the upper hand when they put an offer on the table and it’s easy to see why. Having pre-approval demonstrates that you’re serious about purchasing a home—you’ve done your homework and have arrived prepared. It also officially addresses your ability to finance the purchase, which leaves no question in a seller’s mind that yours is a firm offer.
It’s great leverage in negotiation and can protect you in a bidding war. By knowing your limit, you won’t place a bid that goes beyond what you can actually afford. After your offer is accepted, all you have to do is to send the property and offer details, any other requested information, to your lender. Your pre-approved mortgage will be converted into your actual mortgage in a matter of hours.
When it comes to buying a home, there’s no better way to approach a purchase than with the confidence and convenience that a pre-approved mortgage provides.