Think you’re ready to buy a new home? Before you start scouring the web for your new home, the first step in your home buying process should be getting pre-approved for a mortgage. But what the heck does this mean?
What is a pre-approval? A pre-approval is when your mortgage lender looks at your finances to determine how much they are comfortable lending you, and the interest rate they will charge you on the money you borrow.
Many tools you see online can only pre-qualify you for a mortgage or give you a rough estimate of what you could be approved for. We know it's confusing.
How will pre-approval help me? Being pre-approved will tell you the maximum mortgage you can apply for, help you estimate your payments, and will allow you to lock in the interest rate for up to 120 days, depending on the lender. Once you have been pre-approved, that's when you can start working with your realtor and looking for a house.
Your mortgage broker will do a lot of work upfront, such as asking for bank statements, to make the pre-approval faster and you can go shopping sooner.
Will I be guaranteed the maximum amount of my pre-approval? No. A pre-approval is the amount that you may get, not the amount that you actually get.
What you actually get approved for depends on the value of your current home (if you have one), how much you have for a down payment, and the property taxes on the property being purchased.
Also, just because you are pre-approved for a certain amount doesn’t mean you have to use that full amount if you are trying to stay within a budget. You'll have to include money for closing costs such as home inspection, lawyer fees, and moving.
How do I get pre-approved? A mortgage broker and lender will look at your current assets, your income, and your current debt level. You will need to provide:
Valid, government-approved identification;
Proof of employment, such as a current pay stub or letter from your employer, or CRA Notices of Assessment if you’re self-employed;
Proof you can afford the down payment and closing costs;
Information about your other assets, such as a vehicle, as well as your debts or other financial obligations, such as credit cards, child support obligations, or lines of credit or other loans.
How long does it take to get approved for a mortgage? If you’ve found the perfect house and have put in an offer, you will need to get your mortgage approved. In our process, we aim to get this done within 1 day.
Pre-approved? Go Shopping!
After you’re pre-approved, you can start shopping for your new home! If you’re new to the home buying process, make sure you check out our blog on questions to ask your realtor, as well as things you shouldn't do after you've been pre-approved.