Are you thinking of buying a property but don’t know where to start?
The first step would be mortgage pre-approval, and we’re here to help.
What is mortgage pre-approval? It means you’ve been pre-approved for a mortgage. The mortgage lender has committed to approve you for a mortgage up to a certain amount. This makes you the most attractive home buyer, if your offer for the property is the highest.
What Is a Mortgage Pre-Approval?
Mortgage pre-approval is not approval for a home loan. It means they’ve reviewed your application and are almost certain to extend a home loan. It isn’t a guarantee of financing, but it means you’ll be very likely to get it and secure it far faster than those starting from zero. For example, each property is going to be assessed and scrutinized by the lender. You might be approved for a loan if the property was in better shape or conformed to the ideal single family home in the suburbs.
The lender is also going to review the borrower again before approving the loan. They’ll verify employment documents. They’ll run a second credit report. Note that this means you shouldn’t be buying a bunch of stuff in anticipation for your new home purchase, and you absolutely shouldn’t open new credit cards or buy a new car. Mortgage rules may change in the interim, as the Canadian mortgage stress test demonstrates.
What good is a mortgage pre-approval then?
A mortgage pre-approval is a formalized vetting of the home buyer as a mortgage customer. This shows real estate agents and home sellers that you can get a mortgage for a certain amount. It also shows that you’re serious. Anyone can tour houses and ask questions. Since you went through the effort to get pre-approved for the mortgage, you’re obviously serious. A side benefit of the pre-approval is that it is a form of vetting. It proves to the home seller that you have a job, good credit score and other requirements for buying a home.
A pre-approval helps home buyers, as well. Between ten and twenty percent of credit reports have an error on them. These range from minor issues to major problems that prevent you from being approved for a home loan. Mortgage pre-approval lets you know when these problems exist. Then you don’t lose out on the home of your dreams because of an error on your financial record.
Another benefit of mortgage pre-approvals is that it comes with a rate-hold. A rate-hold locks in the offered interest rate for anywhere from 30 to 120 days. Then you know what interest rate you’d be charged on your mortgage, and you can predict your mortgage payment for a given property. If interest rates go up in the interim, you’re protected from a rate increase. If rates go down, most mortgage lenders will lower the interest rate on the loan they approve.
Understand the Place of Mortgage Pre-Approval in the Mortgage Process
Understand that pre-approval of the mortgage is a process. Pre-approval forces you to get all of your documentation together and pass the first round of gate-keeping. Approval is much more likely and will be far faster. Then you begin the process of closing on your new Grande Prairie home. Talk to our mortgage experts any time to understand the rest of the home buying process.