Starting the process of house hunting can be a big endeavour and even a stressful time for both buyers and sellers, however, there is much that can be done to mitigate this stress and make it an exciting time. A question I have been asked is “should I be pre-approved and at what stage should I speak with a lender?” Simply put, yes you should look to get pre-approved and even before starting to look at potential houses, a helpful step is good old fashioned budgeting to get an initial sense of a number. It's important to do a thorough review of your finances and budget a concrete number you can afford each month. In this blog we will focus on becoming pre-approved, the steps involved, the benefits, and what not to do when going through this process. While you may have a vague idea of what your price range is, pre-approval will help with a more concrete budget you can work with. The last thing you want is start searching for your next home, find the one, fall in love with it, tell family and friends, only to find out you can’t qualify for that loan amount. The pre-approval process is a lender or mortgage brokers preliminary review of your current financial situation to help determine a specific loan amount you could afford for a house purchase, this approval usually lasts for a period such as 60 to 120 days. Final loan approval occurs when an appraisal of the subject property is conducted and the underwriter gives the “green light” on the purchase of the property. While it is not always required to get approved before starting the house-hunting process, it is a good idea and can save a lot of time for all parties involved. It will also help determine any obstacles that may cause issues, such as having too much debt or a low credit score. The following is a list of information you should have available when going to see a vendor to start the process.
WHAT YOU’LL NEED
- Personal Information:
- Government identification and details such as age, occupation, marital status, children, etc.
- Information on current financial situation
- This will include bank, branch, accounts and balances as well as information on remaining debts
- Further information on debts
- The lender will want full information on all debts so that they can run your debt service ratio. This includes, but is not limited to:
- Credit cards and line of credits
- Spousal or child support
- Car leases and payments
- Student loans
- Personal loans
- Source of down payment
- Confirmation of Down Payment and the source of where the money will come from.
- Consent to run a credit check
- Understanding your credit score is an integral part of the pre-approval process.
- Information on your Current Property
-Recent mortgage statement
- Current homeowner insurance policy
- Most recent property tax bill/statement
- Legal description of the property
- Property Value
- Proof of Employment – Income Confirmation
BECOME MORE COMPETITIVE
In addition to gaining the best understanding of what you can afford and where to start your home search, being pre-approved can also make you more competitive in comparison with buyers who have not been approved. When reviewing offers in a competitive market, sellers and their agents may give value to your offer over those who have not been reviewed by a lender yet. Not that this is the sole determining factor in a sellers decision, it does make a lot of sense when thinking from their perspective. They want to ensure the buyer is qualified to get a mortgage loan when opening up the negotiation process, accepting an offer, and taking the house off the market. Only to find out the buyer can’t qualify for a loan of equal value of the property, this is a waste of everyone's time and to the potential value of the property.
WHAT NOT TO DO:
While these have been steps you should take when becoming pre-approved and some of the reasons why it is helpful in the house-hunting process. There are equally things not to do during this time.
- Don’t make the upper ceiling of your mortgage pre-approval your maximum purchase price
- Just because you have been approved for a certain amount, does not mean you necessarily want to get a mortgage for this amount. This can stretch you close to your limits and leave little room for other costs that come with homeownership. Such as potential expenses needed for emergencies or otherwise.
- Don’t make major purchases
- You don’t want to drastically change your financial situation after submitting your documentation to the loan officer. Major purchases could very well alter your financial standing, even if you were pre-approved this does not mean you will have final approval.
- Don’t apply for new credit:
- Similarily to making a major purchase, applying for new credit or co-signing a loan could affect you qualifying for a loan.
- Don’t quit or change jobs:
- Having a steady and predictable income is very important to mortgage approval and securing a loan.
As you can see, there are a number of benefits to becoming pre-approved. You gain an understanding of any barriers you may be facing to enter the market, along with knowing where to start and what you can afford when looking to buy a home. In addition to what you should do when becoming pre-approved keep in mind the important things, you should not do when going through this process.
Want more in-depth insights into starting your home search? I have that information and would love to help. Call today.
Thanks,
Liam Zahara