Advantages of a pre-approvals :
1. Shows your realtor that you’re serious
2. Saves you time house hunting because you’ll only be seeing houses you can afford
3. You may be able to lock down a rate so you won’t have worry about rising rates while you shop
4. Reassurance to a seller that your financing is less likely to fall through.
Apart from saving for your down payment, the first thing you should do when considering starting your house search is to contact a lender, your bank or trusted mortgage broker are a great place to start. Getting a pre-approvals will speed up the home buying process as the bank will already have a file open for you and have gathered much of the required information ahead of time. You can start the pre-approval process anywhere up to 120 days before you want to buy, it will depend how long the lender guarantee’s your pre-approval which typically runs between 90 – 120 days. Keep in mind, all pre-approvals are not created equally and you should know the difference between a pre-approval and a rate guarantee, even a pre-approval is not a full approval, be sure you understand the differences and limitations.
Rate guarantee: If the lender does not review your qualifications (you do not provide any documentation) but gives you a guaranteed rate, subject to later approval.
Pre-approvals: The lender requires you to provide documentation proving your income, the source of your down payment and any assets and liabilities you possess. They will also look at your credit report to determine your credit-worthiness. This speeds the process once you do find a house you’d like to submit an offer on.
You can be pre-qualified to assure you meet the basic guidelines but that’s not the end of the qualifying process. A pre-approval gives you the green light to start looking but only a lender’s underwriter can confirm that your qualifications (income, down payment, the agreement of purchase and sale, specific information about the property, credit and debt ratios) meet their full approval.
The next step in the process is the appraisal. Appraisals can’t be done prior to you finding a house but will be required before getting a mortgage. What that means is appraisals can’t take place until you find a home and that’s the risk you take. There’s always the chance that the lender or mortgage insurers valuation appraisal reveals that you paid too much . This is why it is always advisable to insert a financing condition in your offer to purchase. NOTE: Not all lenders operate the same, be sure to ask your lender when the appraisal will be completed. When inserting a financing clause, you want to ensure the appraisal is completed within your conditional period. If not, you’ll want to find a different lender; you don’t want an appraisal to take place after it’s too late to get out should anything go wrong.
Once you have your pre-approval in place be sure not to make any changes that could render it void. Don’t make any big purchases, don’t change jobs, or co-sign a loan from someone. If you’re unsure of the effect an action can have on your pre-approval, check with your lender first. It’s better to error on the side of caution.
Lender – A person or company that loans money and takes a security in real property.
Insurer – Mortgage insurance protects the lender against payment default by the homebuyer and is required if the borrower has less than 20 percent of the purchase price as a down payment. In Canada there are 3 different mortgage insurers; CMHC, Genworth Financial Canada, Canada Guaranty.
Rate: The rate of interest charged by a mortgage lender.
Appraisal: An evaluation of a property’s value performed by a professional appraiser. The appraiser is usually chosen by the lender but paid for by the borrower.
Credit and debt ratios: A way lenders measure an individual’s ability to manage monthly payment and repay debts.