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WHY THEY MATTER AND HOW TO GET ONE
- SPARK & PONY
Shopping for a new home in 2021? Up your game with a mortgage pre-approval. Have no idea how the process works? This post will explain everything you need to know.
If you’re shopping for a new home, chances are someone has told you to get pre-approved for a mortgage. There are lots of reasons why getting a mortgage pre-approval is beneficial, especially if you are house-hunting in a competitive market like Edmonton. And even more so in 2021, when dozens of potential buyers are putting offers on the same home, hoping theirs is the one that gets accepted.
Have no idea how the mortgage pre-approval process works? No worries! That’s what we’re here for.
This post will cover all things mortgage pre-approvals, including:
- What IS a mortgage pre-approval?
- What are the benefits of HAVING a mortgage pre-approval?
- How do you GET a mortgage pre-approval?
Mortgage pre-approvals are an important part of the home-buying process. Having a full understanding of all the tools at your disposal will make the home-buying process less stressful.
Let’s get started, shall we?
What is a Mortgage Pre-Approval?
A mortgage pre-approval is a document from a lender that says you qualify for a mortgage loan up to a certain amount. It can also include a specific pre-approved interest rate.
Lenders determine the mortgage amount you qualify for based on several factors, including your income, credit score, assets, debt-to-income ratio, and the size of your down payment. The more rock-solid your financial foundation is, the more money a lender will pre-approve you for.
What Are The Benefits of Having a Mortgage Pre-Approval?
The 2021 housing market is hot right now and buyers are looking for ways to stay organized and navigate their options. Getting pre-approved for a mortgage does just that, helping potential new homeowners house hunt with ease. Here are just some of the many benefits of having a mortgage pre-approval.
#1 It Lets You Know What Homes You Can Afford
When it comes to shopping for a new home, part of being organized is understanding what you can actually afford. Sure, there might be dozens of homes in your desired neighbourhood that also include your list of must-haves, but if they’re completely out of your price range, you end up just wasting your time.
When you get pre-approved for a mortgage, you are able to clearly define your budget and set limits to your search so you only look at the places you can afford.
#2 It Gives You More Negotiating Power
Think of it from the perspective of the person who owns the home. If they know you’ve been pre-approved for a mortgage and the sale will almost surely go through, they might be more open to bargaining.
So if you want to come in a little lower or have them cover the cost of some repairs, having a mortgage pre-approval might give you more power at the negotiation table to ensure you get what you want.
#3 It Makes You a More Desirable Candidate
Having a mortgage pre-approval helps you stand out in a sea of buyers. When you have a pre-approval document from a lender, it shows a seller that you’ve done your research and are taking the process seriously. It also gives a seller confidence the deal will go through.
Question: if you and another potential buyer have both placed offers on the same house, and one of you has a pre-approval for a mortgage and the other does not, who do you think the seller will be more likely to choose?
Answer: the prospective buyer with the mortgage pre-approval. That’s because there is a far greater chance for the deal to fall through with the buyer who doesn’t have a mortgage pre-approval.
#4 The Deal Closes Faster
Closing on a house takes time. While it might feel lame, there are certain processes that need to happen for things to close. A big part of that process is mortgage approval.
Having already been pre-approved, the process becomes a lot quicker and you can get possession of your new home much faster than without one. This also gives you an advantage if you are buying from an eager seller looking to make the deal happen quickly.
How Do You Get a Mortgage Pre-Approval?
The first step when it comes to getting pre-approved for a mortgage is to choose who your ideal lender is. That means shopping around for rates. You can get a mortgage pre-approval from three potential lenders at one time. After comparing all your options, you can choose which lender is the most desirable for your given financial situation.
When you’re applying for a mortgage pre-approval, the lender will need to assess a few things. To make sure the process goes as smoothly as possible, have everything on hand when you apply.
For starters, any lender will need to run a credit-check. That means they need your personal information and social insurance number. After running a credit check, the lender will know your credit score, debt-to-income ratio and have a clearer picture of your financial history.
A potential lender will also need proof of your income, which means you’ll need your tax information, pay stubs, and any other documents related to your income. Finally, a lender will need to understand your whole financial picture, which includes investments and other assets you own, including things like a truck camper, rental property, boat, etc.
In Canada, a mortgage pre-approval can last up to 60, 90 or 120 days depending on the lender. This is also subject to change depending on any major adjustments to your credit. If your home search lasts longer than the allotted time of your pre-approval, the lender can either extend it or you can reapply.
Avoid taking on any debts or making a large purchase during the homebuying process. This might invalidate your pre-approval which means you will have to do the process all over again – and ain’t nobody got time for that.
A Mortgage Pre-Approval Isn’t As Daunting As It Looks
The home buying process can feel pretty complex and overwhelming some days. Adding a mortgage pre-approval to your list of things to do might not seem worth it.
But consider it this way. You have to apply for a mortgage at some point, right? Why not do the heavy lifting at the beginning, making the process way easier near the end – when the anticipation is real.
Collecting documentation takes a bit of time. So start now! Get those tax returns in order, collect your pay stubs, and any other documentation you will need to show a lender.
Getting your paperwork organized is half the battle anyway.
Also Read: Millennials Guide To Buying Your First Home
A Few Things To Consider
Sure, house hunting in beautiful neighbourhoods and looking at your dream homes is fun, at first. But it can also become really defeating, especially when you realize you have narrowed your search in on homes that just don’t fit within your budget. A mortgage pre-approval helps keep your search laser-focused.
Remember growing up when an adult would tell you ‘just because you can do something, doesn’t mean you should?’ Well, that sage piece of advice has never been more appropriate than when it comes to mortgage pre-approvals.
Just because you are pre-approved for a certain amount, doesn’t mean you need to buy a home for that amount.
There are a lot of additional costs with owning a home, including lawyer fees, repairs, upkeep, property taxes, and the list goes on.
Who wants to be stressed out all the time?
Staying within your budget will make home ownership a far more enjoyable experience for you in the long run.
Real Estate For The Modern Millennial
Tribe Real Estate Co. is the newest brokerage in Edmonton, Alberta. We are hyper-focused on helping millennials navigate the Canadian real estate market.
There are dozens of real estate brokerages, all vying for your attention…
So… why choose TRIBE?
We are here to take the complicated process of buying a home and make it make sense… for you. We also want to make an impact in the communities we live in. That means building relationships with small businesses and entrepreneurs who are investing their time and resources back into the neighbourhood.
Tribe agents are:
and highly experienced real estate professionals who specialize in helping millennials buy and sell their homes.