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Mortgage Education

How Does The Mortgage Pre-Approval Process Work?

 

mortgage pre-approval processAre you ready to buy a home?

Before you start the process of finding the ideal home, you should understand the mortgage pre-approval process.This step is particularly ideal if you plan on purchasing a home within the next 90-120 days. Being pre-approved for a mortgage means that you have spoken to a lender who has calculated your income and credit score, and has said you’re eligible for a loan to purchase your new home. Note that this is in by no means a binding contract and the final decision of the lender will be made upon the appraisal of the real estate and a number of other factors, but it puts you in a good position when you start the home buying process and shows sellers that you’re a serious buyer. Let’s take a closer look at the pre-approved mortgage process:

What is a pre-approved mortgage?

A pre-approved mortgage is the tentative loan agreement between you and a lender for the future purchase of real estate.

When is it time to get the mortgage pre-approval process started?

If you have saved for your down payment and have seriously begun to look at properties, or have found a property you wish to buy, it is time to get pre-approved. A pre-approved mortgage is typically valid for 90-120 days, depending on your lender’s agreement.

How do I know how much to get approved for?

When it comes to getting approved for a mortgage, you first must consider your monthly household income. Most lenders agree that as a general rule, housing costs should be less than 32% of your monthly income, though this may be different in urban markets like Toronto where real estate is more expensive.  Housing costs include your mortgage payment, utilities, and associated taxes.

Why should I get a pre-approved mortgage?

There are many benefits when getting pre-approved for a mortgage. The first advantage that many note, is that they have a keen understanding of their financial limits and what their able to take on financially. Before they have purchased their home, they already know what they can spend. It also gives you an advantage when selecting a realtor to work with, as many require pre-approval for first-time home buyers before they begin working with them.

What is the mortgage pre-approval process like?

Getting pre-approved for a mortgage is relatively a simple process. You can get pre-approved as soon as you are in the market for a home. Set up an appointment with a mortgage broker and fill out an application. This application will require information about credit, monthly household income, and so forth. The mortgage broker will calculate this information; contact lenders on your behalf, then contact you with your options.

As an example, newlyweds Mr. and Mrs. Smith have been saving for a home in the GTA. The couple goes to a mortgage broker, supply the needed information, and the mortgage broker contacts various lenders on the couple’s behalf to find them the best rate. The mortgage broker then contacts the couple saying you have been pre-approved for a $300,000 mortgage at say 4%, based on certain conditions at time of final approval. Although it is a tentative agreement, the couple not only has an idea of their boundaries when purchasing a home, but also has the ability to financially plan for their home purchase.

What documentation do I need to supply to my mortgage broker at my appointment?

The pre-approval process requires a calculation of your household income and credit score. Prominent lenders suggest you come prepared to your appointment with the following:

  • Photo ID
  • Record of Employment (A T-4 slip)
  • Account Numbers (as well as locations of your accounts and investments)
  • Confirmation of Down Payment
  • Details of Assets
  • Details of Liabilities (any debt such as credit card, loans, or other financial obligations)
  • Notary/Solicitor Contact Information

 

Once you have been pre-approved for a mortgage, you are in the market for purchasing. The final step will be seeking final approval. For a cut and dry final approval process it is important to maintain your financial situation from the time of pre-approval.

Have questions about the mortgage pre-approval process? or would like to get pre-approved now?  You can contact us here to get started.