First of all, let’s get the question of whether you need a pre-approval in place when you’re shopping for a home out of the way right off the bat…
YES, yes you do…
Not convinced? Ok, let me as you a question… when you go shopping for a big ticket item, do you research and budget first before you step into a store or do you just go in and ask for the best widget they have available regardless of cost?
What can be more heart-wrenching when house hunting than finding the home of your dreams to subsequently find out you don’t qualify for the mortgage required to buy that home. If you tour homes in the $650,000 range and fall in love with the features and neighbourhoods and then find out that the maximum you should be shopping for is $500,000, how much are you going to love houses in that range when you’ve been viewing higher end homes?
Many realtors prefer to work with home-buyers who have pre-approvals in place because it allows them to do their jobs much more efficiently. They can combine your wish list of features and locations with their knowledge of the local markets to show you houses that match ALL of your requirements, saving you both time and disappointment.
Convinced yet? Thinking you can work out a budget yourself with the use of all those fancy calculators you can find on google? Well, that’s definitely a great first step, however those calculators don’t always take all the variables into consideration… qualifying rates vs. posted rates, closing costs, etc. It is always in your best interests to sit down with an experienced mortgage professional to put a formal pre-approval in place.
What your Pre-Approval should do
There are a few different descriptions out there, some companies offer pre-approvals, other pre-qualifications… and not all mean the same thing. What you want to ensure is that the following items are covered…
- Lock in an interest rate for you, typically for a period of 90 to 120 days
- Verify your income documents. Different lenders have different criteria as to what they will and will not accept for income verification, make sure that you provide your confirmation documents and that they are vetted and accepted as part of the pre-approval process.
- Reviews your credit report and score. Higher credit scores can often mean better rates or more flexible debt servicing requirements. Discuss your score with your mortgage professional and see how it rates. It may be more prudent for you to take a period of time to put a strategy in place to increase your score to improve your application. Make sure you review all of the items on the report to identify any potential errors and then take action to correct any incorrect information.
- Confirms not only your down payment source but also that you have sufficient closing costs to cover other expenses.
Keep in mind that a pre-approval gives you the maximum amount you qualify for. I like to use the adage of “Just because you can, doesn’t mean you should”. The expenses that the mortgage professional uses to qualify a deal does not include many day to day expenses that you may have such as child care expenses, commuting costs, etc. I encourage my clients to do a personal budget that includes all of their monthly expenses and my advice is typically, if your mortgage payment is so high that you can’t afford to order pizza on Friday night, then maybe it’s not the right home for you…
One final point to remember when putting in an offer on a home is that there is usually a negotiation process, and if you go in with your top offer at the start, you leave yourself no wiggle room.
Brenda St Amand is a licensed Mortgage Agent in Barrie, ON. Working with 11 others Agents and Brokers through Mortgage Sense Inc., she has access to over 30 different lenders and their product offerings. As a financial professional for over twenty five years, Brenda is known for always putting her clients first and being flexible and understanding of their needs.