Essential Knowledge Series
If you're purchasing a home or know anyone who is looking at homes, you may have heard the term 'pre-approval' come up in conversation. Pre-approvals are an important part of the home buying process and every Canadian looking at homes should have one.
In this post, I will be outlining the 3 most important aspects of getting pre-approved and what you should know.
What is a pre-approval?
What does this pre-approval letter mean to me?
I have my pre-approval letter, now I can buy a home, right?
1. What is a pre-approval?
A pre-approval is the first step in the home purchase process. When you first talk with your banker or mortgage broker, they will start the mortgage application process with you. The benefit to getting pre-approved is that you don't need to have a property in your sights. In reality, you shouldn't ever be looking at properties if you're not sure what you can afford. People jumping the gun and purchasing before they know what they can afford has led to many problems for buyers.
After you start the pre-approval process, the agent you are working with will ask you to produce certain documents. These are normally income documents for the people who are being pre-approved. In addition to the documents, they will ask you some general questions about where you are looking to purchase, what type of home and what neighbourhoods you are going to be looking in. Although this seems unimportant at the time, these details will help the agent you are working with give you the most accurate approval amount possible. Every property type and neighbourhood can have a significant impact on your approval because of property taxes, condo fees and more.
2. What does this pre-approval letter mean to me?
Your pre-approval will give you an idea of the purchase price you can afford if completed correctly. If the agent you are working with is experienced, they will be sure to give you multiple scenarios for your approval. For example, there are scenarios where you will want to amortize your loan over 30 years instead of 25, purchase in specific areas and/or your income might fluctuate.
You will want to make sure that your pre-approval letter doesn't give you a blanket statement that you're pre-approved without giving you those scenarios and stipulations. You might be surprised when you go back to your agent and they say they can longer help you because the home you put an offer on doesn't fit into the pre-approval model.
We've heard of multiple scenarios where people go back to their agent and they are no longer pre-approved for the amount given earlier because the home's property taxes are too high or the condo fees weren't accounted for. Be sure to ask a lot of questions when you obtain your pre-approval to ensure you know what you're getting into before putting in an offer.
3. I have my pre-approval letter, now I can buy a home, right?
That's right! Now that you have an idea of what you can afford, you can start the search for your dream home. Make sure to stay within the guidelines of your pre-approval and provide the most accurate numbers to your agent.
One last thing. One of the most beneficial decisions you can make is to call/email your agent once you find a home that you like so they can update your numbers accordingly and give you the final go-ahead. There are times when the house someone chooses falls outside the initial guidelines or isn't suitable for the client financially and giving a quick call to your agent can help avoid any future financial losses!
As someone who likes to be prepared, I always go back to the same saying, "By failing to prepare, you are preparing to fail”.
Questions/Comments?
Give us a shout in the comment section or find our contact details on the main page of our website at www.triedandtruemortgages.ca
Comments