Don't Jump the Gun - Secure a Mortgage Pre-Approval Before Making An Offer On Your Next Home
Secure a Mortgage Pre-Approval Before Making An Offer On Your Next Home
House-hunting is exciting. Looking at potential homes and picturing your family living there, imagining how you will make the property your home, all add to the fun. However, if you are serious about buying a home, securing finance needs to be at the top of your list. Getting pre-approval before you make an offer is the safest way of doing that.
If you have started looking at properties already, make sure you don’t get carried away. Talk to a lender about a mortgage before making that offer.
Canada’s real estate market is booming – for sellers. Plenty of people are looking for their new dream home, and smaller cities or larger towns are especially popular. Potential buyers may face competition and need to meet a tight timeline when it comes to making offers. For that reason, it is important to plan for the financial side of the purchase before making an offer.
A hot real estate market means that lenders receive more applications than normal. This high volume causes underwriters to struggle with accessing and validating mortgage applications. At the moment, most banks need a minimum of 35 days to complete an application.
As a potential buyer, being pre-approved for a mortgage helps you understand your budget better, so your house shopping becomes more efficient. You will also have an idea of your monthly payments as well as interest rates.
Talking to your mortgage broker is a great first step in the process. Whilst brokers cannot speed up the mortgage application process, they can identify the most suitable lender and support you through the pre-approval process. This may sound like additional work, but it will give you peace of mind when you are looking for that dream home.
Having a pre-approved mortgage shows that you are a serious buyer, and it may give you an advantage over other buyers. In most cases, pre-approval also protects you against rising interest rates for a few months. Most lenders offer between 90 and 120 days. Plus, it is free, and there is no obligation.
Although they sound almost identical, mortgage pre-approval and mortgage pre-qualification differ. The latter is just a rough estimate, whereas a completed pre-approval is a much more concrete estimate.
What Influences Pre-Approval?
Your credit score is one of the biggest factors that determine the mortgage rates you are offered in Canada. Lenders consider credit checks as an indicator of your overall financial health. The higher your score, the lower your mortgage rates will be.
A stable income is another influencing criterion. Lenders consider a stable income to be a near-guarantee of your ability to continue paying your mortgage. Self-employed mortgage applicants generally need to provide proof that they are able to stay profitable long-term. This is a bit trickier than showing an employment contract, and a specialist mortgage broker is often best placed to help with pre-approval.
Don’t despair if your initial pre-approval attempt fails. Understanding why you weren’t pre-approved is like getting a road map for approval. Reducing existing debt helps when lenders consider debt-to-income ratios. You don’t need to be debt-free, but low debt levels will improve your credit score.
Saving a larger amount to put down as a deposit is also worthwhile. To secure a favorable mortgage rate in Canada, you would ideally want to save up more than 20% of the property’s purchase price. This avoids having to buy mortgage loan insurance. Whilst it may take you longer to move into your own home, a larger deposit automatically leads to lower monthly outgoings.
Searching for and finding your dream home is exciting and rewarding at the same time. There is nothing quite like getting the keys to your very first own home. However, with the excitement often comes a degree of stress.
To make the transition smooth as possible, consider working with a mortgage broker who can help you navigate the process. Especially if your financial situation is not clear-cut, a broker’s specialist knowledge is a gamechanger. Mortgage pre-approval will help you understand how much house you can afford. It will minimize the hassle you need to deal with when you are making an offer and will go a long way towards a smooth transition between properties.