Hopefully, all of the significant government mortgage rule changes are now in our rear-view mirror! Now more than ever, it is extremely important that potential homebuyers get pre-approved to buy a home as the maximum purchase price you may have qualified for in the past has now been reduced by at least 20%! Due to a higher mandatory qualifying rate regardless of your down payment amount and the contract rate that you have negotiated with the lender, using online calculators is not going to be accurate unless you know all of the new lending rules. While there is no guarantee of financing, a mortgage pre-approval acts as a proactive approach towards a positive outcome. Here are 7 tips about pre-approvals which will help in taking an educated approach to financing your new home purchase.
1. What is a mortgage pre-approval?
A mortgage pre-approval is when a mortgage professional will submit your financial application along with your current credit report to a lender for review prior to you making an offer to purchase a home. A pre-approval is not a binding commitment, but rather an indication that the lender is prepared to offer you mortgage financing once a suitable property has been found and your application details have been confirmed by supporting documents. It is important to note that even if you do receive a pre-approval, a “condition to financing” clause should be part of any offer you make.
2. The process
You and the mortgage professional will complete a mortgage application which will include the purchase price range and property type you have in mind (i.e. house, condo or acreage). The mortgage lender will then review your application details which takes 1-3 days for a response. If you are not being qualified at the purchase price you want, ask your mortgage professional if any changes to your finances could be made to allow you to qualify for a higher mortgage amount.
3. What comes after the pre-approval?
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.
4. A pre-approval is not a guaranteed mortgage approval
A mortgage pre-approval is pretty much determined by a borrower’s credit, income, assets and debts. While you may have a mortgage “pre-approval”, it does not guarantee an unconditional “approval” once you find a property you want to buy. The lender may have said yes to your income and credit history, though they still may decline you based on the property you choose. Perhaps the price you are paying is not supported or there may be a feature that limits future marketability of the property such as the home being a previous grow-op. Basically, a lender does not fully approve your financing until they’ve seen every piece of the puzzle including property features and documents that support the details on the mortgage application you have submitted.
5. No guarantee means you still need protection
As the mortgage lender can decline to lend against the property you want to buy, or the insurance company declines you and/or the property if you are putting down less than 20% of the purchase price, you need to ensure you are protecting your deposit. Having the lender review the property details along with ALL other application support documents prior to you removing your financing condition is vital. You need to know if there are any issues or concerns with your financing prior to your condition removal date, rather than after.
6. 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 offer you a new pre-approval at current rates.
7. The benefits
As a consideration to your realtor and for comfort to you as a buyer, it makes sense to have a pre-approval in place before you spend time looking at homes. Though, if you feel your financial profile is strong enough to not secure a pre-approved mortgage with the new rule changes, it may still make sense to have a chat with your mortgage professional to pre-qualify instead. We will simply run the numbers without ordering a credit report, advise of what support documentation will be required and where the interest rates are expected to be for a purchase in the near future.
Former banker turned Mortgage Broker call for all your mortgage needs, contact Jackie at 780.433.8412 or firstname.lastname@example.org. Stay in the loop by following on Facebook (MortgageGirl.ca) Twitter (Mortgagegirlca) Instagram (MortgageGirl.ca)