Everything You Need To Know About Mortgage Pre-Approval
Becoming a homeowner is a life-long dream for many Canadians but as with all new experiences, there’ll be uncertainty and you may even second guess yourself once or twice. You’ll be interviewing realtors, looking at homes, worrying about bidding wars, and let’s not forget the big one: Qualifying for a mortgage.
To help you on your home hunting journey here is the first step in the buying process: The mortgage pre-approval.
Apply for a pre-approval first: Most people think the first step in the home-buying process is to contact a realtor and start looking at homes. This isn’t correct. The first thing you should do is apply for mortgage pre-approval. After all, if you find a home you like, you’ll want to move quickly and being pre-approved for a mortgage removes an extra step in the process.
Shop around: Just as you’d view several homes before settling on “the one,” you should shop around for the best mortgage rate. Don’t just go to your local bank branch and expect to receive the best mortgage rate. Do your research and compare mortgage rates or use a mortgage broker who will negotiate on your behalf. Even half a percentage point can make a huge difference in your regular payments and the amount of interest you’ll pay over time. For the best mortgage brokers logon to Agent ReVa to get connected to the best just over a chat!
Assemble your documentation: Collecting all of the documentation required for a mortgage approval can take time so it’s best to get started right away. Ask your mortgage broker for a list of required documentation to finalize your mortgage and begin gathering it all in one place.
Here’s a preliminary list:
- Bank account and investment statements to prove your ability to pay the down payment
and closing costs
- Proof of any assets like a car, cottage or boat;
- Proof of income (pay stubs and a letter from your employer, or a notice of assessment if you
- Number of years with current employer
- Information about debt including student loans, car loans, and lines of credit.
Read the fine print: Once you’ve been pre-approved, your loan officer will send your pre-approval document. This document will outline the interest rate you’ll receive, the loan terms, and the mortgage amount you’ve been pre-approved for. It may seem like financial jargon, and it’s important to read the fine print on every page carefully. Again, your mortgage broker can help you with this.
Things to avoid
Just like there are a variety of things that you should do to make the mortgage process more simple, there are a few don’ts that can end up costing you. Here are a few:
- Don’t get pre-approved for more than you budgeted: This is one of the enticing traps that some buyers are pulled into. If your mortgage provider approves for a larger amount than what you had initially applied to, beware that the mortgage you are pre-approved for may not jive with what you can actually afford. Don’t make the upper ceiling of your mortgage pre-approval your maximum
purchase price. Do your own calculations, figure out how much you can afford monthly (don’t forget the other costs associated with home ownership, not just the mortgage) and go from there.
- Don’t make major purchases: Once you’ve submitted your documentation to your loan officer, your financial situation shouldn’t change from pre-approval to loan finalization. You don’t want to change your financial situation because that could ultimately result in loan rejection, even if you were initially pre-approved. To avoid rejection, don’t make any major purchases that change your debt service ratios.
- Don’t apply for new credit: You also shouldn’t apply for new forms of credit like a line of credit or credit card and don’t co-sign a loan for a friend or family member. Otherwise, you may no longer qualify for a mortgage.
- Don’t quit or change jobs: Finally, don’t change jobs! A key to your mortgage approval is a steady and predictable income. Changing jobs or quitting your job to become self-employed will definitely throw a wrench into your mortgage approval process. Instead, put off changing employers or becoming an entrepreneur until after you have the keys to your new place.
These are some of the basics that one has to keep in mind when getting their mortgage pre-approved. For a more detailed outlook, an experienced mortgage broker is a way to go. To get connected to the best mortgage brokers, agents and lawyers, log on to Agent ReVa.