When you’re ready to start looking for a home, you should first arrange for a mortgage pre-approval. This process will determine the amount of mortgage you will qualify for based on your financial situation. And it’s also beneficial in many situations, especially during the negotiation process to get a leg up on other potential buyers. To help you be a savvy buyer, we demonstrate how it can work for you and why mortgage pre-approval matters.
A pre-approval tells you exactly how much you can afford to spend on a home. You wouldn’t want to fall in love with a home, submit an offer, to then find out you don’t meet the lender’s requirements. Knowing what you can afford is also important when you engage in the negotiation and bidding process against other potential buyers. A pre-approval offer is most likely to win in a multiple bid situation. Plus, you’ll also know how much room you have to move your price up in a negotiation scenario.
During the pre-approval process, your mortgage broker will present you with the available products that are best suited for your needs. There may also be loan programs you’re eligible for that you wouldn’t otherwise know about, such as Canada Revenue Agency’s Home Buyer’s Plan (HBP).
Delivers a Quicker Closing
As part of the pre-approval process, you’re required to fill out a mortgage application and submit documentation that outlines your income, assets, and debts, among other supporting information. Since these items are also required as part of the closing process, the application will be able to move faster through the due diligence and final closing. A speedy closing is attractive to vendors and can give you the upper hand when there are multiple bids.
Provides a Lender Commitment
With a mortgage pre-approval, the lender makes a full commitment that they’ll loan you money if you meet their requirements. This gives you a guarantee for funding before you start looking for your dream home.
Locks in Interest Rate
When you secure mortgage pre-approval, you lock in an interest rate for a given period, usually 60-120 days. If interest rates rise, you will only pay the rate secured at the time of pre-approval. If interest rates fall, you will pay the lower rate.
Helps You Correct Issues
You may not know what your credit score is or that there are issues with your credit rating. A pre-approval process will surface any issues you may have with your credit score. If there are any errors or problems, you can address them before attempting to bid on homes.
There are many reasons why you should get a mortgage pre-approval before you start looking at homes. VERICO The Financial Forum can help you navigate through this entire process. We are here to help you figure out how much you can afford and what loan options are available for you.