The Importance of Getting Pre-Qualified and Pre-Approved for Your Mortgage
Before you embark on your house-hunting adventure it’s essential to have a firm idea of what the type of home you’ll be able to afford. Though there is nothing wrong with daydreaming about how you want your ideal home to look, the first thing you should think about is much more mundane – and possibly nerve-wracking if contemplating your finances sends shivers down your spine!
The first step you should take is to get pre-qualified or pre-approved for a mortgage. Doing so will save you time, effort, and money, and relieve much of the stress that accompanies the home-buying process.
Pre-Qualification vs Pre-Approval.
Getting your mortgage pre-approved is not the same as getting pre-qualified. When you are pre-qualified for a mortgage, that means lenders have provided you with an estimate on how much you can afford to borrow, based on your income, assets, and debt.
When you are pre-approved for a mortgage, lenders have conducted a deeper, more thorough analysis of your current financial standing, examining your bank statements, credit reports, and other crucial documents, to provide you with a more accurate picture of your borrowing capacity. Once complete, you’ll be conditionally approved for a mortgage for a specified period of time.
The Benefits of Pre-Qualification
Getting pre-qualified is beneficial for the following reasons:
- You’ll receive a preliminary estimate of the type of home you can afford, thereby allowing you to focus your search on homes that are within your financial grasp. There’s nothing worse than spending an inordinate amount of time and effort fixated on what you consider to be your ideal home, only to be disappointed upon discovering that your mortgage application has been rejected.
- You can figure out where you stand financially and identify areas for improvement. For example, let’s say you were thinking of purchasing a new vehicle with the aid of a loan. Doing so could adversely affect your debt service ratios, which are analyzed by lenders to determine how large of a mortgage you can afford. You may ultimately decide to postpone purchasing a home until you get your finances in order, giving you the opportunity to qualify for a larger mortgage and more favourable rates in the future.
- You’ll be able to speak to numerous lenders about financing your mortgage, as you’ll have a general idea of your borrowing capacity. There will be no need for each lender to review your credit report, and you will have time on your side to shop around for the perfect financial institution.
The Benefits of Pre-Approval
Carrying more weight than a pre-qualification, getting pre-approved will prove to be very beneficial when you ultimately decide on making the leap to an actual purchase.
- The lender will grant you a rate lock, which means they will guarantee an interest rate for a specified period of time (usually 60-120 days). Putting a hold on a great rate allows you to hedge against the possibility of higher rates in the near future.
- You’re afforded financial security for a period of time, alleviating some of the stress of scrambling to find the ideal property.
- You’ll appear more attractive to sellers. A pre-approval shows that you are serious about making an offer and completing the deal as quickly and efficiently as possible. You may also have more negotiating power, as sellers know you have firm financial backing.
- You’ll have a concrete idea of how large of a mortgage you can afford, so you’ll know precisely the types of homes to consider and which ones to avoid.
- You’ll have more detailed information about your mortgage, such as the monthly payment amounts, how much your down payment will be, options for prepayments, etc.
As you can see, there are numerous benefits to getting pre-qualified or pre-approved for a mortgage, so take the time to carefully go through the process before exploring properties. When you finally select the home you wish to purchase, you’ll be armed with a conditional commitment from a lender, allowing you to proceed with full confidence knowing that your financing is secure.