What’s A Mortgage Pre-Approval, And Why Is It Important?

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As stated in last weeks’ blog, buying a home can be an extremely difficult process, and most new homebuyers make tons of mistakes and don’t get what they need in the end. This week, our article will cover one of the crucial steps in getting the money you need from the lender, in order to get closer to buying the home of your dreams. Let us tell you about the mortgage pre-approval and its importance!

So why, do you, the homebuyer, have to get a pre-approval for the mortgage application?

It is recommended you get through this process because the broker will tell you how much you can afford, which in turn will help you narrow down (or expand) your house hunt. It will save you plenty of time and stress. As a result, you can also make life a bit easier for real estate agents, licensed professionals who usually help homebuyers find the next roof over your head. Knowing how much money you have for the home will help them search much more efficiently for you, and they will take you even more seriously because you are not ‘just looking around for fun’.

Usually, most homes have a seller, and this will let them know you are serious about purchasing their current home, and will seriously consider your offer because they will get the money. In addition, having your status as pre-approved, you have some leverage if you decide to negotiate with the seller to bring down the price a little bit.

Knowing how much money you’ll be able to get, financial planning will get easier. You won’t necessarily need professional help allocating your resources besides the mortgage broker, and you can sleep well at night knowing that things are under control without having to stress about funds.

Finally, it’s all free of charge ! And if not comfortable, you can refuse the mortgage offer. But if you do accept it, the rate can be ‘locked in’ for 4 months and not be affected by increases. However, as mentioned a couple of weeks ago, this depends on whether you choose between a fixed rate mortgage or a variable rate mortgage. The latter will be discussed in a few weeks.

So how does the process all happen?

We look extensively into your financial and credit background, as well as a formal mortgage application. That way, the bank or lender will give an amount you get approved of, and an idea of the interest rate on your loan.

You will be told about the various types of mortgage options and which one would be the best fit for you. As mentioned above, it may be fixed or variable, and we also discuss interest terms, payment options, and other options. Everything is usually well clarified to you.

Again, as mentioned above, you also need to submit a formal application, including all the details about your employment status, and everything financially related. It is alot of private information to give out, but necessary for us to determine if you are ready to take on a mortgage. You may need to provide further documents later on, once a conditional approval is granted. If all goes to plan, you will be fully approved!

Please note that reviewing all personal expenses and planning for future ones is very important even before thinking about the pre-approval. We want you to be comfortable with the amount and terms of the pre-approved mortgage. You are also under no obligation to go ahead with the loan once pre-approved. It is mostly an important screening process to determine whether a lender should give you a loan to purchase your home.