4 Important Reasons to get a Mortgage Pre-approval when Buying a House

Shopping for a new home is an exciting process, and, while casually checking out open houses and home listings can be fun, serious buyers should start their home buying process in their lender’s office. 

That first meeting with a lender will shape your search for the perfect home. When purchasing a home, doing whatever you can to make the process as smooth as possible is important, and nothing can make it easier than being pre-approved for a mortgage.

What is a mortgage pre-approval?

Your mortgage lender will look at your personal situation – income, debt, assets, credit score, and other factors to determine the maximum amount of mortgage you qualify for. The pre-approval document will show that maximum amount along with an estimate of your mortgage payments. It will also allow you to lock in the interest rate that is currently offered by your lender. 

Here are a few reasons why your mortgage pre-approval document will be your best friend as you shop for a new home.

A mortgage pre-approval helps focus your home search

When you start shopping for a new home, there are so many options to consider! Should you buy a new build or an older home? Perhaps a home that needs renovations? What about a home with a basement apartment that you can rent out? In an Ottawa neighbourhood, or outside the city? 

Once you have discussed your finances with your mortgage lender, you can narrow your search to the home options that are a good fit for your financial situation. As you review each option, you can factor in the monthly mortgage payment you are comfortable paying as well as home maintenance costs, renovations required on the home, commute time and cost, and any potential income from renting part of the property.

A mortgage pre-approval saves you time when time is of the essence

Picture it. You’ve just visited the perfect home and you’re ready to put in an offer. Perhaps, there are other interested buyers. Rather than spend the next few days agonizing over the decision of “can we afford this home”, you’ve already done that homework!

If the home price sits comfortably within the mortgage pre-approval window, you can make an offer with confidence – and maybe beat out some competition! Just remember, that your mortgage pre-approval maximum amount does not guarantee that you will receive a mortgage for that amount. Your mortgage lender will explain the other factors involved, such as the value of the home and/or required renovations.

Mortgage pre-approval means faster closing time

Your mortgage pre-approval will be an important document when working with the home builder or seller. With a pre-approval, all background checks have already been processed, and some lenders will even provide an appraisal at this time for your new build home!

When you get pre-approved for a mortgage, your credit has already been looked over, your income statements have been checked, and you’ve been accepted as trustworthy and liable for your mortgage payments. 

Although it may not speed up the actual home-building process, a mortgage pre-approval will take a lot of stress off your plate once your home has been finished.

Pre-approval as protection against fluctuating mortgage rates

We are living in a time of fluctuating interest rates, with mortgage rates and lending offers moving up and down seemingly every week. When you’re shopping for a home, this can add significant stress because the rate affects the maximum amount you qualify for as well as your monthly payments. 

Locking in an interest rate at pre-approval stage will help put your mind at ease for the duration of your house hunt. You will know that you can’t do worse than the locked in rate. But if rates fall while you are searching, then all the better! You will get the lower rate when you sign. 

When choosing a lender, ask if they have experience working in the new home industry. If they understand the new home buying process, they may be able to make it more convenient for you by holding your rate until closing or providing an appraisal before construction has even begun.

As you familiarize yourself with interest rates, how often and how much they change, and how they affect your mortgage, you will also be able to plan ahead for your mortgage renewal. If rates go up in the next five years, will your payment become unaffordable? How much buffer should you plan for, and is it possible to use a period of low rates to pay off more of your principal quicker?

How to Get Accepted for Mortgage Pre-Approval

Getting pre-approved for a mortgage loan is quite an easy process, which is why we’re surprised more homebuyers aren’t getting one before purchasing their dream home! Here are a few things you may need to provide to a lender before you can be pre-approved for a mortgage:

  • Proper identification (SIN Number, Driver License, Passport, etc.)
  • Confirmation of Employment (i.e. pay stubs)
  • Income information (i.e. pay stubs) to verify that you can pay for your down payments and various closing expenses.
  • A list of notable assets: vehicles, other homes, boats, etc.

Other financial considerations including:

  • Credit card restrictions/ current debts
  • Spousal support/ child support payments
  • Active loans (i.e. car loans)
  • Student loans

We can’t wait for you to move into your new place. Make it a fun and relaxing process by seeking a mortgage pre-approval loan today!

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