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I wish to buy a home and want to start looking. How important is a
mortgage pre-approval in the home buying process?
By Triston Rans of The Mortgage Group
Obtaining a proper mortgage pre-approval prior to beginning your house
hunt is extremely important as it determines the maximum mortgage amount
that you will qualify for. This enables you to shop in your appropriate
price range, and saves time in the negotiation process. It will also hold
the interest rate for 90-120 days, guarding you against rate fluctuation,
ultimately providing peace of mind during the home-buying process.
You can be “pre-qualified”; this term is often confused with a
“pre-approval”. But this really only means that someone - including yourself
- has taken a general look at your income versus expenses and plugged them
in to a debt-to-income ratio formula. Pre-qualifying before you start
looking for a home gives you a general idea of what you can afford. It will
not, however, lock-in an interest rate for you and does not typically
include an analysis of your credit report or an in-depth look at your true
ability to buy a home.
When you are “pre-approved” for a mortgage, it means a mortgage professional
has looked closely at both your credit report and your income. They can
determine that you actually qualify for the loan, the maximum mortgage
amount, which programs you qualify for, and discuss the interest rates
offered for different types of loans. At this time, you will be asked to
provide documents to verify your application information including income
and potential down payment confirmation. Once pre-approved, you can start
shopping for a home with confidence about your buying power. However it
still isn’t a guarantee that the lender will approve the loan.
When you have made an offer on a home, the final step is for the lender to
issue a “mortgage commitment letter”. This is done after they have approved
BOTH the house and you, as the property must also meet the lender’s
guidelines. Because of this, it is very important to include a financing
condition in your offer to purchase. This condition allows you the necessary
time to get the mortgage approval and the commitment letter from the lender.
This letter is only issued when the lender is sure they will lend. It will
contain the terms of the loan and any remaining conditions that will need to
be met in order to obtain the financing. Ideally, this should be reviewed in
person with your mortgage professional for proper clarification.
For more advice on your personal mortgage needs, please contact Triston
Rans, at The Mortgage Group, at 571.8142 ext. 237 or email
tristonrans@mortgagegroup.ab.ca
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