Buying a house should be an exciting time but applying for a home mortgage can be a trying process. Home buyers may already be emotionally stressed from the home-buying process, wanting to move into a new home as soon as possible, when they find out that they still need to obtain a mortgage approval from a lender.
To make this process easier for home buyers, it is a good idea to get a mortgage pre-approval first. It works a bit like a trial run. The lender gets a chance to evaluate the applicants, and the new potential borrowers not only get a chance to see what's involved but also how much mortgage they qualify for, an idea of how much their payments will be and what is required to have their loan approved by the lender. In addition, the pre-approval works to increase the buyer's credibility with real estate agents and home sellers as it shows them that the buyers have the ability to secure a mortgage once they bid on a property. Use the KANETIX mortgage payment calculator to help you get a better sense of your monthly payments to assist with your budgeting needs.
Requirements to get a mortgage pre-approval
The pre-approval process isn't just a meet and greet, however. Applicants will need to bring with them a portfolio of information to allow for an initial evaluation. For most mortgage lenders, an example of what's required includes:
- The type of mortgage desired
- How much down payment (minimum of 5% required)
- Personal information
- The borrowers' list of assets and existing liabilities
- Employment history and income level
- Other income sources
- Employment history
- Credit history
For some mortgage applicants, especially for first time home buyers, the pre-approval process can be a bit of a wake-up call. It helps identifying any problem areas in an applicant's financial history and give home buyers, for example, an idea of how much they need to save before they buy a house or by how much they need to improve their credit score in order to be approved for a mortgage. Additionally, a good idea, before applying for a pre-approval, is to obtain a copy of one's credit report from one of the credit bureaus to have a better idea of where the applicant stands financially. Applicants can also use KANETIX credit score calculator to estimate their credit score.
During the pre-approval meeting, the loan officer will examine all the information provided by the applicant. The criteria lenders will look at in order to make a decision include, for example, the buyer's liabilities, their overall credit history, and risk factors that might tell the lender the potential borrowers will not be able to afford their mortgage.
Once the pre-approval is issued by the lender, the applicant will then receive a pre-approval certificate or a written confirmation listing a specific, fixed interest rate. This rate is usually guaranteed for 2 to 3 months giving home buyers a chance to start shopping for a home. Having a guaranteed rate can be an important benefit if mortgage rates rise in the meantime. And if rates go down, home borrowers still have the chance to get a lower rate.
The Benefits of the Pre-Approval Process for Home Buyers
When home buyers go through a pre-approval process, they assume the biggest benefit is that they will be given a preliminary green light to borrow. In fact, the most important benefit comes with finding out the maximum home purchase price a prospective borrower can actually afford.
It also gives borrowers a leg up in the home buying process. Prospective borrowers tend to be more attractive to real estate agents and home sellers. The reason is obvious - someone in the lending business has vetted and confirmed that the buyer has the potential to be approved for a mortgage to buy the properties he is looking at.
Finally, as mentioned before, pre-approval often comes with a rate lock benefit. Lasting on average about 60 to 90 days, the benefit protects an applicant from being impacted by rising mortgage rates that might change from weekly. Just a fraction of a point rise in rates can mean thousands of more dollars in interest paid for the same house in the long run, so locking a smaller rate initially can be a huge advantage over the life of a loan.
Obtaining a mortgage pre-approval has its advantages, both for the borrower and for the lenders. It allows both sides to see what will be required from the other in order to be approved for a home mortgage. The mortgage pre-approval helps buyers better prepare for home-buying. Find out more about mortgages and related topics by visiting our mortgage information centre.
Through KANETIX, you can also get pre-approved from the comfort of your own home! Visit our mortgage rates page to find the best mortgage rates in Canada, lock in your rate, get pre-approved and obtain your mortgage today! We serve Ontario, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Newfoundland and Prince Edward Island.