Many people wonder what means getting pre-approved for a mortgage. A pre-approval is an in-principal commitment from a mortgage provider to lend you a certain size mortgage at a particular rate. When you are pre-approved, you will be able to know the maximum amount you can afford spending on a home, the monthly mortgage payment which is associated with your maximum purchase price, and also what your mortgage rate will be for your first mortgage term.
A pre-approval helps you understand the home value you can actually afford, which allows you to plan and budget for your future home and focus in a certain house-search range. A pre-approval also allows you to secure a mortgage rate offer ahead of time, and also protect you from any rate increase that can happen during your home search.
It is free to apply for a mortgage pre-approval, and it does not attach you to a lender. But, getting pre-approved hold the mortgage rate you are offered for 120 to 160 days. Like mentioned before, this will protect you in case interest rates increase. If by any chance the rates go down during this period, the lender will honour the lower rate. However, a pre-approval does not mean that your lower rates are guarantee. This also depends on your financial situation remaining the same when you apply for the mortgage.
How should I get pre-approved for a mortgage?
When you get pre-approved for a mortgage, it can benefit you in many different ways. To begin with, it is a time saver, since you only will be looking into the houses you can actually afford that are within your price range. Secondly, getting pre approved means that you have a strong interest in purchasing a house, and because of that you will get a faster and more personalized service. Thirdly, it will benefit tremendously when you make an offer to a home, because being pre-approved shows to the seller that you will have no issues financing the purchase, increasing your chances in a competition situation. Do not forget that if interest rates drop, the lender will honour the lowest rate.
Regarding how to get pre-approved, you would need to meet with a mortgage broker or a lender. They will ask you many questions in order to determine how much you will be able to afford, and also, you will need to provide some documentation to support your request.
Usually, lenders use three main factors to determine how much money they will lend you: first it is your credit score. Secondly, it is the down payment, and thirdly, debt service ratios.
It is also important to point out that the documentation you need to provide in order to support your application, may vary from broker or lender. Some mortgage brokers will ask for a proof of income to get you pre-approved. Others will only require proof once the offer has been accepted and you need to complete your mortgage application.
Some other documents you might be asked for to submit for your mortgage pre approval include: Canadian drivers license or passport; proof of income, credit cards or lines of credit, car and personal loans.
Mortgage Pre- Approval Conditions
A pre-approval doesn’t guarantee that your final mortgage application will be approved. If the lender doesn’t find the property that you submitted the Offer of Purchase suitable, the lender will most likely deny you the mortgage.
Also, when you get pre approved, it doesn’t mean that you should buy a property at the top of your price range. The pre approval amount represents how much the lender is willing to lend to you, and not necessarily how much you should spend. Purchasing a home lower than your pre-approved amount is a good strategy to ensure that you have enough room in your budget and paying the debt.
If you are unsure of your options, you can reach out to a mortgage broker. They are experts that will be able to provide you with free advice on your application and help you navigate through the pre-approval process.
If you are looking to refinance or purchase a home over the next few months, contact us today at 877-296-2696 or email us at email@example.com.