You’re shopping for a new home, with the best intentions to take advantage of favourable market conditions. This is one stressor buyers can’t control. Another big one is financing – which is something you can totally take change of. To limit you stress and improve your changes at home-buying success, you should get pre-approved for a mortgage.
To put it simply, being pre-approved for a mortgage means that a lender confirms that you’ve qualified to borrow a certain amount of money for the purchase of a home. Pre-approval is based on various factors, and the process involves several different steps.
As the borrower, you should shop around for mortgages and compare options from different lenders. Throughout this process, you will learn the maximum amount of mortgage you qualify for and the estimated mortgage payments on the amount borrowed, while locking in an interest rate for up to 130 days from the date of the pre-approval. This latter point is especially timely, with recent interest rate increases impacting borrowers of mortgages and other types of debt.
On the lender side of the process, they will look at your financial circumstances including your income-to-debt ratio, credit score and financial history. The lender uses all these factors to assess your borrowing risk and determine the amount of mortgage, interest rate and terms you’ll qualify for. It is important to note that the mortgage pre-approval process does not guarantee you will be approved for a mortgage.
Why Should I Get Pre-Approved for a Mortgage?
1. You’ll Have an Idea of How Much Money You Have to Work With
Buying a home is a significant investment of your money and time. This time investment only increases as competition in the housing market rises. This is precisely why having a mortgage pre-approval is essential before starting your search. By beginning the process with the knowledge of just how much money you can spend, you can keep your search realistic and give your real estate agent an appropriate price range.
Being well prepared with realistic expectations and a clear price range will save you time, eliminating homes that are out of your reach financially. You’ll also be able to give your real estate agent the information they need to find you a home that fits both your desired specifications and your budget.
2. Your Scope of Search Will be Narrowed
Continuing on the point above, knowing how much mortgage you can afford will narrow your search considerably. It will also give you a more realistic idea of what the market has for you. Perhaps the home of your dreams isn’t in the cards just yet based on your pre-approval, but maybe you can afford to buy a home that you can renovate and put back on the market at a higher price in a few years.
Being aware of your buying power before starting your hunt will cross any homes you cannot afford off your list.
3. You Become a More Competitive Buyer
The real estate market in Canada has been known to heat up from time to time, and in some of the larger markets, competitiveness never really dies down. In some areas, you could be competing for the same home with dozens of other potential buyers. When the market is hot, and competitiveness is high, time is of the essence. During the time it would take you to ask a lender if you can afford a home, that home will be snatched up by another buyer who already has their pre-approval in hand.
4. You Become a More Desirable Buyer
When the market is tight, and there are competing offers on a home, the prospective buyer who makes a firm offer is more likely to win over someone who doesn’t – that’s just a fact of the market.
5. It May Shorten Your Closing Period
The closing process on the house starts with securing financing. The process itself can take almost two months from start to finish. By already having your financing pre-approved, you can move on to the next step in the closing process.
When you’re ready to buy, ensure you work with an experienced, professional real estate agent who can help you navigate the market. Click HERE to find a RE/MAX agent near you.