Applying for a home loan pre-approval can be a nerve-wracking experience, but it’s a smart move if you want to buy or build a house. Although not required prior to obtaining a mortgage, they can improve your negotiating power and speed up the formal mortgage application process when the time comes. Knowing what to expect and what lenders are looking for during this process can ease your mind and prepare you for the questions to come.
What Does It Mean To Be Pre-Approved?
Being pre-approved for a home loan means a bank or lender has reviewed your financial situation and determined that you are able to afford a mortgage up to a certain amount. You’ll receive a letter indicating the amount, which you can take with you when you look at properties and share it with agents or builders if you find one that you want to make an offer on.
Keep in mind that these are not mortgages, or even guarantees of mortgages. They are tools used by lenders to determine your ability to repay a loan. They are a good indicator that you will qualify for a mortgage, but they are not mortgages themselves. You’ll still need to go through the formal mortgage application process when you’re ready to make a purchase. The good news is, all this work ahead of time will make the formal process much smoother, and quicker.
How To Get Pre-Approved
First, you’ll need to find a lender that handles home loans or mortgages. You may want to talk to more than one lender as a means of shopping around for the best terms. To start the process, the lender will need to:
Verify your income. To do this they will ask to see recent pay slips.
Check your credit. Each lender you speak to will order a credit check.
Examine your savings and assets. You’ll need to provide banking and investment statements.
Verify your employment status. Lenders will make calls to your place of employment to verify that you do work there, and to verify that you earn the amount you’ve stated on the application.
Verify your identity. They may ask to make copies of government-issued identification, such as driver’s license or passport.
Shopping around for mortgages ahead of time is one primary advantage. This way you won’t be left scrambling to find a lender and favourable terms when you are ready to make an offer on a property.
Why You Should Get Pre-Approved
Besides giving you time to shop around for the best terms, there are many other advantages:
They give you a budget number. You’ll know exactly how much home you can afford. This can help you narrow down your search to properties that fit within your budget, or it can motivate you to save more money to put towards a deposit.
They give you negotiating power. Buyers who show up with a pre-approval in hand are taken seriously. Sellers know you are motivated to buy and they also know you’re likely to get financing so they don’t have to worry very much about the deal falling through at the last minute due to your inability to get loan. If you’re in a situation where there is a competing offer from a buyer without one, you can gain an advantage.
They make the loan process easier. You’ll already have submitted most of the paperwork needed to obtain a mortgage. The lender won’t have to wait on credit reports, employment verifications, or bank statements before they can get the application moving. This can speed up the process.
You can lock in at low rates. You may be able to lock in at today’s interest rates. That means, even if rates go higher, your mortgage terms will be at the lower, locked-in rate.
If you’re serious about buying or building a new home, get pre-approved. They can help jump start your home search and put you in a better buying position. There is no need to walk into your house-hunt without a clear idea of what you can afford, and whether or not you can get a loan.
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