Over the years, I have worked with many clients who want a mortgage. I enjoy working with home buyers. I find that it's important for home-buyers to get a mortgage pre-approval before starting the house hunting journey.
When I go through the process, some clients will ask, "What is a mortgage pre-approval?"
A mortgage pre-approval is where you go through the mortgage approval process before you choose a home. With a mortgage pre-approval, the lender will review your income and your credit. The lender will let you know how much mortgage you can afford before you start hunting for a home.
There are a couple of advantages of getting a mortgage pre-approval before you purchase a home.
Advantages of Mortgage Pre-Approval
Purchasing a home is a big investment. There are 3 advantages to getting a mortgage pre-approval:
- Understand your Budget
- Interest Rate Hold
- Clear Expectations
What is your budget? With a mortgage pre-approval, your mortgage broker or your lender will let you know how much mortgage you can afford. They will also let you know what the payments would be.
Knowing your payments will help you know what to budget for. There are also costs to purchase a home that you may not have thought about. A pre-approval can uncover things you may not have expected or thought about.
I have met with many clients who find out how much they can qualify for and that number is much higher than they expected. The payments for the pre-approved amount is also high! The pre-approval process allowed them to understand what they could afford with their specific budget.
Interest rate hold. When you receive a mortgage pre-approval, your mortgage broker or lender will hold an interest rate for you. This rate hold could be for 90 days or 120 days.
If the interest rates rise, you would be protected from that increase. In most cases, if the interest rates drop, then the lender will drop the rate for you too.
This is a nice side-benefit that people don't always think about.
Clear Expectations: There is nothing worse than shopping for a home for months, writing an offer on that home, then finding out you don't qualify for the mortgage.
I've seen this a few times in my career. I had a client who hadn't talked to me or any other lender. He had been shopping for more than a year and finally found the home he loved. We approved him for the home, but when he saw the payments that he was going to make, he looked like a ghost.
He hadn't anticipated how much that mortgage payment would be. He canceled that purchase and then started shopping again for a home that was much less expensive.
In the end, he found a home he loved, but he had wasted a year searching in a price range he felt he couldn't afford.
What Does A Pre-Approval For A Mortgage Mean?
A mortgage pre-approval means that your mortgage broker or lender has looked at your credit. They have reviewed your income documents. They have also provided you with a mortgage amount that you will qualify for. You may also receive a rate hold certificate.
Your mortgage broker and lender have not looked at the property that you wish to purchase. If you happen to choose a property that the lender doesn't like or the lender doesn't agree with the price, then even though you are approved, the lender may not approve your purchase.
When you have a mortgage pre-approval, you must include a financing condition when you write an offer to purchase a specific home.
How Do I Get Pre-Approved For A Mortgage?
To get pre-approved for a mortgage (i.e. a mortgage pre-approval), you speak with a mortgage broker or a lender. They will complete an application which would include your employment and residence history for the last 3 years.
Your mortgage broker (or lender) will also ask about your assets and liabilities. You will provide documentation to confirm your income, which typically includes an employment letter and a recent pay stub.
You will provide permission for them to check your credit record. Once they have reviewed all of these details, then you will receive a mortgage amount that you qualify for.
During this process, most lenders also offer an interest rate hold. This protects you while you are shopping for a home. You can be confident that as long as you purchase a home within the next 90 to 120 days, the interest rate that you were qualified at will be the highest interest rate you would receive.
How Long Does A Pre-Approval For A Mortgage Last?
A mortgage pre-approval will typically be good for 90 to 120 days. This gives you time to shop for a home. As part of the pre-approval, your lender will hold an interest rate for you. This protects you from a rising interest rate market. With the interest rate hold, the rate provided will be the highest rate you would receive when you purchase within the rate hold period.
If you haven't found a home within the 90 to 120 day period, then you can chat with your mortgage broker (or lender) and get an extension. If rates have risen, then the rate hold will be at a higher interest rate. To extend the pre-approval, you will be asked to provide another recent pay stub and they will check your credit again.
I have had clients who have renewed their mortgage pre-approval several times before they purchased a home. There is nothing wrong with that. You want to make sure you find the right home for you.
Once you find a home, your broker will shop the market for you to make sure you get the best rates and offers. If the pre-approval rate is higher than what's available, then your broker would secure the better deal for you.
Where Can I Apply For A Mortgage Pre-Approval?
As a mortgage broker, I'm biased. I would suggest you apply with us.
To apply for a mortgage pre-approval, apply with a mortgage broker. You can also apply with your bank or financial institution that you have a relationship with. However, the advantage of applying with a broker is that you can get access to offers, rates or programs that your own bank/institution may not have access to.
We have an online income based mortgage payment calculator. I like to use this as my mortgage pre-approval calculator, see below. Our calculator can give you an idea about how much you can qualify for.
It's great as a first step before you want to speak with someone. Input your annual income to see what mortgage amount you can qualify for. Then you can tweak the other details to get a more accurate number.
For details about how to fill in the calculator, read our article that describes this calculator here.
Once you are ready to start the mortgage pre-approval process, then complete the section in the middle with your name, cell & email, then we can connect to give you an official mortgage pre-approval.
A mortgage pre-approval is an important part of your home buying experience. Before you begin shopping for a home, it's important to know how much purchase price you can qualify for. It's also important to know how much mortgage you can qualify for.
By going through the mortgage pre-approval process, you will understand what expenses to expect when buying a home. You will also understand what and how much the payments will be for the price range of home you are shopping for.
If you have more questions about getting a mortgage pre-approval, connect with us. I'm happy to chat.