Pre-Approvals
It’s no secret that people who are on their homebuying journey are shopping around for the best mortgage they can get. During that time it is likely that they will reach the pre-approval stage. A pre-approval is a way homebuyers can see what terms and conditions a lender is willing to offer them. Some of the major information you’ll receive during a pre-approval is:
1. The maximum mortgage amount you qualify for
2. An estimated monthly payment
3. What your interest rate will be
Interest rates are always the first thing a homebuyer asks about. In the case of a pre-approval, the rate is locked in for 90-120 days depending on the lender. If the rate increases during that timeline, you’ll be safe with your locked in rate, but if the rate goes down you may be able to negotiate the better rate before you close.
Note: Typically lenders will only be able to lock in a fixed rate due to the fact that a variable rate is determined by the Bank of Canada’s policy rate which as we have seen lately can change quickly.
A lot of people ask what the difference between a pre-qualification and a pre-approval is. The main differences are that a pre-qualification can be done using online tools by the homebuyer, and does not include an interest rate hold or a credit check. Where a pre-approval needs to be done by a mortgage professional, will include a rate hold, and a credit check is mandatory.
In my professional opinion, getting a pre-approval is a crucial step to take even before speaking with a real estate agent and going out to look at homes. A mortgage agent will help you get the best terms for your pre-approval, prepare you for closing costs, and ensure you understand what your maximum budget will be without compromising your lifestyle. Having all of that information before searching for a home is invaluable, will set your expectations, and will be an asset once you are ready to put in an offer.
In order to be best prepared for your pre-approval process, I have put together a list of items you’ll want to have on hand before speaking to your mortgage agent (don’t worry I remind you of all of this during our strategy sessions).
- 2 pieces of ID
- 3 pieces of employment history
- 3 years of address history
- Income and Employment Documents. Including pension, investments, child tax benefit, support payments, etc.
- Down payment source
- List of assets
- List of outstanding debts
Current mortgage statement
Lines of credit
Bankruptcy or consumer proposals
Separation or divorce agreements
Check out my previous blogs on what to know before you look for your dream home here and the benefits of using a mortgage agent here.
If you are thinking about taking action in your home buying journey I am happy to educate you more on the pre-approval process so that you can ask any questions you may have.
