Whether you are a first-time homebuyer or looking to upgrade your existing house, the house hunt process should always start in the same place; with your mortgage advisor. There is no sense viewing houses before you have a clear picture of what your spending limit is. Obtaining a mortgage pre-approval should always be your starting point so you don’t fall for a house you can’t afford. Here’s a deeper look at what is involved with the pre-approval process.
What is a mortgage pre-approval?
Mortgage pre-approval establishes the spending boundaries for your house hunt. After submitting all required documents to prove your financial readiness, you will be told how much you will qualify for and with this information you can narrow your house search. With mortgage pre-approval secured, you will be able to make an offer right away if you find the right home. This simplifies and destresses one part of a sometimes complicated and stressful process.
How to obtain a pre-approval
Most lenders follow a similar pre-approval process. Income verification is required and very likely a letter will be required from your employer to verify your work status and length of employment. You will also need to provide your recent T4s and proof of any investment holdings. If you are a self-employed borrower, you will have to provide documentation such as two years Notice of Assessments, two years T1 Generals or two years audited/prepared financial statements, business license, and articles of incorporation.
A list of your liabilities will also need to be provided as well so an assessment of your payment potential can be prepared. This includes any vehicle payments, student loans, existing mortgage or rent payments, any loans or liens, child support payments, and credit card and line of credit balances. Once the lender has all information they require, they will able to make an informed decision for how large of a mortgage they are willing to grant to you based on assessment of your income and existing debt obligations.
Good to know
Pre-approval amount may not be 100% guaranteed. Since the pre-approval process is not as thorough as the actual mortgage approval process, there may be some new unforeseen problems unearthed that could cause delays and the property has to also be approved by the lender. It’s important to be realistic in your understanding that the funds are not guaranteed upon receipt of a pre-approval. The only guarantee you have the interest rate you are given in the pre-approval process. It’s also important to ask how long your pre-approval is good for in the event that you don’t find a house in time. A pre-approval can be good as long as 120 days, but each lender will have their own timelines that you need to be made aware of.
Why get a pre-approval?
It’s best to get a pre-approval before putting an offer in on a house. The entire process of obtaining a mortgage can be quite time consuming and when dealing with the strict timelines of house offers, it’s not ideal to start the process under such time constraints. The pre-approval not only outlines your spending budget for house shopping but gets a lot of the preliminary paperwork out of the way.
House shopping can be exciting and it’s easy to get caught up in the process. Be certain you are armed with the right budget range for your situation by obtaining a mortgage pre-approval before starting the house hunting journey. Talk with your mortgage advisor today to learn more about mortgage pre-approval or to start the pre-approval process.