Why Getting a Mortgage Pre-Approval Should Be Your First Step
The prospect of buying a home is enticing and exciting. It’s certainly fun to look at home listings on the internet, and that exhilaration may even lead you to the office of a Realtor in a short period of time. But, if you don’t know what you can afford, then you’re essentially walking blind into your home search.
You really don’t want to go through all the hassle of finding your dream home only to have your dreams dashed when you discover you can’t find a lender to put up the money for your mortgage.
That’s why a mortgage pre-approval is an essential first step in the home buying process. It effectively gives you guidelines for what you can and can’t afford when it comes to a new home. That way, you won’t be surprised when your lender fails to approve a mortgage on a home that would have always been out of your price range.
But, knowing your price range isn’t all a pre-approved mortgage can offer. We’ll let you know more below.
How Do You Get a Pre-Approved Mortgage?
Before we go any further, it’s important to understand how mortgage pre-approvals work. For starters, you’re going to have to compile some documents for your bank or broker.
Some of the information you’ll have to get together includes:
- Proof of income
- Credit report
- Proof of continued employment
- Information about your assets (automobiles, other properties, etc.)
- Information about your debts (car loans, student loans, lines of credit, etc.)
These aren’t all the things you’ll have to produce (and we can help you on that end), but it’s certainly good to get the documentation phase of the mortgage process out of the way early. All of these documents provide lenders with the information they use to determine how much they’re willing to lend you.
Lenders make their mortgage decisions based on 4 main questions:
- Can you afford mortgage payments based on your current income?
- Do you have a good track record of paying back loans?
- Do you have an adequate down payment ready to go?
- What is the property you are intending to buy?
They take the answers to all of these into consideration when deciding on both standard mortgage approvals and early pre-approvals. Now that you know how they work, let’s take a look at why they’re practically a requirement.
Mortgage Pre-Approvals Tell You what You Can Afford
This is the primary reason people want to obtain a pre-approved mortgage and, while it’s not the only reason, it’s certainly a good one. Wouldn’t you want to know early on what you can reasonably expect to bid on when it comes time to make a deal? Pre-approvals give you that exact piece of information.
After pre-approval, you’ll know:
- Exactly how much the lender is willing to lend
- The interest rate (which is usually locked in for between 60 and 120 days)
- A rough estimate of your monthly mortgage payment
- An exact price range
All of these are invaluable, and having them in your pocket before you even start your home search can pay huge dividends.
If you get pre-approved for a loan of $500,000 with an interest rate of 3.5%, then you won’t waste your time looking for homes that exceed your mortgage budget. You can also rest assured that your interest rate will remain the same for a select period of time even if market rates rise.
Pre-Approvals Are Free
They say the best things in life are free, and that certainly extends to pre-approved mortgages in Edmonton. It won’t cost you anything to go through the pre-approval process, so why not go for it? Again, the benefits outweigh the risks because there really are no risks.
The benefits include:
- No obligation to stay with the lender that originally pre-approved you
- You can always look for a second pre-approval
- You can always look for a second pre-approval
So, not only are pre-approvals free for you, they are non-binding and can last longer than the guaranteed 60 to 120 days if you want to reset.
Pre-Approval Identifies You as a Serious Buyer
Many people hire realtors or attend open houses just to test the waters. But, if you have a pre-approved mortgage certificate in hand, you will be viewed as more credible while dealing with real estate agents.
Realtors certainly prefer to know how serious someone is and how much they can afford so they don’t have to waste time seeking out-of-budget properties. It lets them feel comfortable understanding that they are working with an earnest homebuyer with a precise budget.
In addition to the ease with which you will work with realtors, a pre-approval also gives you some leverage when it comes to negotiation. In most cases, it signals to the seller that you will be able to finance the purchase, making it more likely that they will choose you.
Think about it this way, if you and another prospective homebuyer without a pre-approved mortgage make an identical bid, who do you think the seller is going to choose? In almost all cases, it’s going to be you.
Lenders Like Pre-Approvals, Too
Much like home sellers, lenders are keen on mortgage pre-approvals in Edmonton. Banks don’t like risk. A solid pre-approval means that you’ll be an asset to a lender.
- Know you can pay back the mortgage
- Be more likely to give you the full amount for which you were pre-approved
- Finance your mortgage faster
Knowing that your documentation is in order and you’ve been pre-approved for a set amount signals to lenders that you represent very little risk.
Clearly, a pre-approved mortgage in Edmonton is almost as valuable as the mortgage itself. It gives you the freedom to search only for the homes you know you can afford. It provides you with negotiating leverage while also marking yourself as a serious home buyer and borrower.
And, best of all, it’s free!
In the end, pre-approvals let you know where you stand with realtors, sellers, lenders, and even yourself. That’s why, if you’re a serious home buyer, it’s vital to get pre-approved before you do anything else.