In today’s housing climate, mortgage pre-approval is a key element of the house-buying process. More and more individuals and families are choosing to be pre-approved as a way to help plan for and evaluate the burden of owning a house and having a monthly mortgage payment. But what is pre-approval exactly?
What is Mortgage Pre-Approval?
In order to understand the importance of mortgage pre-approval, it’s first essential to have an understanding of what it is. You can apply for mortgage pre-approval with any mortgage broker or lender, including a bank, private mortgage lender, or mortgage investment corporation. Pre-approval will let you know the maximum amount you can afford for a home and will thus give you an idea of viable options on the market. Getting pre-approved for a mortgage will also unfold what your monthly mortgage payment will be based on your maximum purchase price. This information is crucial; many first-time home buyers focus strictly on the amount of the down payment but forget about working the mortgage payment, utility bills, and property taxes into their monthly budget. Pre-approval is one way for people to understand and evaluate the costs, risks, and benefits of owning a home prior to taking the plunge.
Why Is Pre-Approval Important?
If you’re the type of person who is more likely to throw caution to the wind, or preparedness just isn’t your strong suit, you should know there are several additional benefits to applying for mortgage pre-approval.
1. Saves Time
Receiving pre-approval from a mortgage lender can save you time spent looking at houses outside of your price range or trying to work out a budget based on hypothetical numbers. While pre-approval does not guarantee you will receive formal approval for your mortgage, it’s still useful information to have.
2. Locks-In Rates
Something that many individuals do not realize is that applying for mortgage-pre-approval protects you from increases in rates that may occur while you search for a new home. While you are not obligated to proceed with a particular lender, the mortgage lender you do choose is obligated to honour the rate given under your pre-approval for at least 120 days.
3. Shows Commitment
Mortgage pre-approval with a mortgage investment corporation or a bank indicates to home sellers and real estate agents that you are serious about buying. Realtors may be inclined to provide more attentive service and sellers may be more willing to negotiate, knowing how serious you are about proceeding.
4. It’s Free!
There can be a lot of hidden or extra costs surrounding buying a house, but applying for mortgage pre-approval is not of them. There are virtually no risks, meaning you have no reason not to get pre-approved!
How to Get Pre-Approved
While the company that you choose to get pre-approval from does not necessarily need to be the same company that you eventually choose for your mortgage, it’s a good idea to begin the process by looking for mortgage lenders you can trust. Keep in mind that banks may be able to offer better rates, but are also more difficult to receive approval from; when you apply for a mortgage with a bank, you are obligated to undergo a federal stress test. A private mortgage lender or a mortgage investment corporation does not have to follow all of the same requirements. You can check out this blog for more information on choosing the mortgage lender that’s right for you.
As you sit down with a mortgage broker or lender, they will likely ask you a series of questions surrounding 3 main factors:
- Credit Score
- Down Payment
- Debt-Service Ratio
With a decent credit score, a healthy downpayment, and a balanced debt-service ratio, you should be able to qualify for the mortgage of your choice. If any of these factors are not where they should be, a mortgage investment corporation may still pre-approve your mortgage.
Tips From a Mortgage Investment Corporation
A mortgage investment corporation specializes in helping individuals with poor credit, low savings, or experiencing other dis-advantages, (such as self-employed business owners, families that are new to Canada, or first-time homebuyers) access the loan they need to move forward with the purchase of the house. While MICs may be more forgiving or less strict about some aspects of applying for a mortgage, there are still some things that you can do to help the process run more smoothly.
Don’t Spend the Maximum
Just because you received approval for a $400,000 mortgage does not mean you should spend that much. If you are approved for $400,000, you may want to consider looking at homes with listing prices closer to $350,000.
Pay Off Debt
Before applying for a mortgage, or even pre-approval of a mortgage, it might be a good idea to pay off some of your debt. If you are carrying a large balance on your credit card or you have an outstanding student loan, focusing a portion of your income towards minimizing the amount of total debt you have could help in the mortgage lending process.
Get a Second Opinion
Second opinions can not only help you find the best deals but also give you confidence that you’re on the right track. Keep in mind that a pre-approval does not mean you’re stuck with one lender — feel free to shop around!
Mortgage pre-approval is essential to the house-buying process, and it’s not scary or intimidating. Simply find a mortgage lender you can trust and start the process today!
When you’re looking to borrow, Alta West Capital can help. We offer a number of lending solutions for first time buyers, individuals and families that are new to Canada, self-employed business owners, real estate investors and more. Alta West loans are fast and flexible to fit your needs. Visit our website to apply online or contact us directly — call (403) 254-9075 or email firstname.lastname@example.org.