Mortgage Pre-Approval 101
Mortgage pre-approval is one of the most essential pieces of the home buying process. But what is a mortgage pre-approval anyways? It’s a snapshot of your financial situation and dictates what your potential budget is when shopping for a home.
How To Get Pre-Approved For A Mortgage
When looking to get pre-approved, there are a few avenues that you can explore. The first is going through your bank or another financial institution. Your second option is to use a mortgage broker. What’s the difference? A mortgage broker works with a multitude of lenders, consisting of big banks, credit unions, private lenders, etc. Where when you work directly with a bank, you’re only getting access to their mortgage options.
Regardless of which option, it’s good to play the field and explore all possible avenues. This will give you multiple options to compare and consider before landing on the choice that works best for you.
What Factors Influence Your Financial Qualification?
When we meet with first time home buyers, the most frequently asked question is what exactly goes into getting pre-approved for a mortgage. Like any loan, the lender wants to get a clear understanding of your credit history and what your expense to income ratio is. Here’s the type of things that will come into consideration:
- Your overall credit score
- If you have any blemishes on your credit report and how serious they are
- If you’ve had previous credit that has gone into collections or if you’ve previously filed for bankruptcy
- What loans (line of credit or student loans) are currently in your name and what they total
- If you have a car payment they will inquire about the payment amount and balance owing
- Whether or not you have credit card debt and the utilization rate
- What the total amount of your down payment is and what other assets you can use to secure your financing
Honourable Mentions
Mortgage pre-approval can be complex and there are a lot of products on the market so it’s good to be as open and transparent about your end goal. For example, if you plan to renovate the property that you’re purchasing, you might be eligible for a specialized product that allows you to essentially roll the renovation costs into your mortgage (obviously there’s more to it than that but we’re simplifying for this post).
The type of property that you’re purchasing can also impact the type of mortgage that you get. If you’re planning on buying for the sole purpose of renting or rural property with hopes of farming, you can face different lending rules and regulations.
Most importantly, we’d be remiss if we didn’t include the top honourable mention: pre-approval makes you a more serious, qualified buyer in the eyes of a seller. This can become immensely beneficial in a competitive market. While it’s not an iron-clad guarantee, it signals to the seller that you’re a strong candidate for mortgage approval.
If you have any questions regarding the current market landscape, how to home buying process works or would like to be put in touch with our preferred lenders, reach out. Where here to help!