The government has made a number of changes to the mortgage rules over the past 5 years which has resulted in significant changes to the mortgage market landscape. As a result this reduces the number of people who can actually qualify for a mortgage now versus the numbers from a couple of years ago. Couple that with the fact we’re in a competitive summer market right now and the buyers confidence level becomes the difference between getting the home you really want or not. A mortgage pre-approval is when your mortgage professional will submit your financial application to a lender for approval prior to you making an offer to purchase a home. The lender will then take a preliminary look at your mortgage application and advise you are pre-approved up to a certain purchase price. A pre-approval is not a binding commitment, but rather an indication that the lender is prepared to give you a mortgage once a suitable property has been found and your application details have been confirmed by supporting documents which is usually not done until you have actually made an offer. It is important to note that even if you do get pre-approved, a “condition to financing” should be added to any offer you write.
A mortgage pre-approval differs from a mortgage rate hold in that the lender actually looks at the details of your application, whereas a rate hold is just that, a rate hold without any examination of your qualifying details. Not all lenders these days will take the time to offer more than a rate hold so make sure you know exactly where you stand financially prior to house shopping.
A potential borrower fills out a mortgage application with a general purchase price range in mind. This amount may change as you start property shopping. It’s important to establish a maximum price range so you won’t be disappointed. The mortgage lender will then review your application details which include credit score and repayment history, downpayment sources and depending on your employment type, they may ask for upfront documentation to confirm income amount. If you are not being qualified at the purchase price you want, ask the mortgage specialist if any changes to your finances could be made to buy higher. The mortgage pre-approval process usually takes 1-3 days.
Most mortgage professionals are happy to obtain a pre-approval on your behalf as it not only provides you with a price range to shop in, it also allows you to familiarize yourself with what the mortgage payments will be at the different purchase prices. Your mortgage professional will also be able to provide you with a list of supporting documents your lender will request once you do find a property. This will get you started on document collection to make the rest of the mortgage and home buying process go smoothly.
A Pre-Approval is not a Mortgage Approval Guarantee
A mortgage pre-approval is pretty much based on a borrower’s credit, income and assets. While you may have obtained a mortgage pre- approval, it does not guarantee an approval when you actually find a property. The lender may have said yes to your income and credit history, but they still reserve the right to decline the property you choose. There are a variety of reasons why a property may be declined, including but not limited to; a purchase price not supported by an appraisal, homes with structural damage, or a home having a feature which may limit the future marketability of the property- such as a large farming acreage or a previous grow-op. Basically, a lender does not fully approve your financing until they’ve seen every piece of the puzzle including property details and documents that support the details on the mortgage application you submitted.
The other clause when it comes to pre-approvals is the approval response may change if there are any material changes to the buyer’s financial picture. Specifically if the borrower’s income or downpayment suffers an unexpected decline or personal debts take a sharp incline. Always consult your mortgage professional before making any big changes to your financial situation to see if it will affect your pre-approval.
No Guarantee Means You Still Need Protection
As your mortgage pre-approval lender can still decline the property, you need to ensure you are protecting your deposit by having a financing condition on your Offer to Purchase. Protect yourself by having your lender review the property details along with your other application support documents prior to removing your financing condition. You are allowed to get your deposit back if you cannot obtain a mortgage approval for that property, so it’s better to know before your condition removal date, rather than after.
How Long Do They Last?
Most pre-approvals are usually valid for 90-120 days, after which time the lender may require updated information in order to extend the rate hold. Keep in mind although the lender has already pre-approved you, they will always reconfirm the details that led to the initial approval decision. If any part of your financial picture has changed- whether it’s credit, income or assets- it is the lenders prerogative to decide not to extend you a mortgage approval.
If you’re working with a realtor to buy a home, they will likely want to know if you’ve had a preliminary mortgage consultation before they proceed to show you potential properties. An online mortgage calculator may not cut it so do take a few days to get a qualified mortgage pre-approval so you can shop competitively and confidently.
If you would like more details on how a mortgage pre-approval can benefit you, please do not hesitate to contact The MortgageGirl at 780.433.8412 or firstname.lastname@example.org. Stay in the loop by following on Twitter @mortgagegirlca.