How to get preapproved for a mortgage
You are ready to buy a house – this is a big deal. It may well me the most expensive purchase many of us will ever make. Unless you have a ton of cash at hand to pay for the house outright, you will need a mortgage, here is how to get pre-approved for a loan to finance your new pad.
What is a mortgage pre-approval
When you’re shopping for a mortgage, you can compare options offered by different lenders.
Mortgage lenders have a process which may allow you to:
know the maximum amount of a mortgage you could qualify for
estimate your mortgage payments
lock in an interest rate for 60 to 130 days, depending on the lender
The mortgage preapproval process may be divided in various steps. It may also be called mortgage prequalification or mortgage preauthorization. Different lenders – Banks, credit unions, mortgage companies – have different definitions and criteria for each step they offer.
During this process, the lender looks at your finances to find out the maximum amount they may lend you and at what interest rate. They ask for your personal information, various documents and they will run a credit check.
The mortgage lender will take you through a process which will
review the maximum amount of a mortgage you could qualify for please note> this does not mean that you need to go up to this maximum number
estimate your mortgage payments
depending on the lender, you will be able to lock in an interest rate for 60 to 130 days
Where to get a mortgage pre-approval
You can get a preapproval for a mortgage preapproval from mortgage lenders and mortgage brokers.
Mortgage lenders
Mortgage lenders lend money directly to you and they come in the form of the following lenders:
banks
credit unions
mortgage companies
insurance companies
trust companies
loan companies
Different lenders may have different interest rates and conditions for similar products so be sure to talk to several lenders to make sure you’re getting the best mortgage product for your needs.
It’s important to be comfortable with the lender and the mortgage options they offer you, DO NTO take on a larger mortgage than you can handle and be sure to look at
Mortgage brokers
Mortgage brokers don’t lend money directly to you. They arrange transactions by finding a lender for you.
Some lenders only offer their products directly to borrowers, while some mortgage products are only available through brokers. Since brokers have access to many lenders, they may offer a wider range of mortgage products to choose from.
Mortgage brokers don’t all have access to the same lenders. This means the mortgages available vary from broker to broker. When you’re dealing with a mortgage broker, ask which lenders they work with.
Mortgage brokers generally don’t charge fees for their services. Instead, they usually receive a commission from the lender when they arrange a transaction.
The states, provinces and territories regulate mortgage brokers. You can contact them to confirm that a broker is licensed or to make a complaint.
What information you nee do provide to your lender or mortgage broker
Before preapproving you, a lender or mortgage broker will look at:
your assets (what you own)
your income (how much money is coming in)
your level of debt (what you owe)
You’ll need to provide the following:
identification
proof of employment
proof you can pay for the down payment and closing costs
information about your other assets, such as a car, cottage or boat
information about your debts or financial obligations
For proof of employment, you may have to provide:
a proof of your current salary or hourly pay rate (for example, a recent pay stub
your position and length of time with the employer
notices of assessment from the Canada Revenue Agency for the past 2 years, if you’re self-employed
Your lender or mortgage broker may ask you to provide recent financial statements from bank accounts or investments. This will help them determine if you have the down payment.
Your debts or financial obligations may include your monthly payments for:
credit card balances
child or spousal support
car loans
lines of credit
student loans
any other debts
Other things to consider during the pre-approval process
The preapproval amount is the maximum you may get for a mortgage. It doesn’t guarantee that you’ll get a mortgage for that amount and it does not mean that you need to go up to the top of this pre-approval amount.
The approved mortgage amount will depend on the value of the property and the amount of your down payment.
Remember that you also need money for:
closing costs
moving costs
ongoing maintenance costs
Land transfer taxes
Home insurance
Home inspection
Any renovations
Furniture
What happens if the lender refuses your mortgage application
A lender could refuse you for a mortgage even if you’ve been preapproved.
Before a lender approves your loan, they’ll verify that the property you want meets certain standards. These standards will vary from lender to lender.
Each lender sets their own lending guidelines and policies, for example, a lender may refuse to grant you a mortgage if you have a poor credit history. If this happens to you can go back to the lender and make the following adjustments:
Seek a lower mortgage amount
Charge you a higher interest rate on the mortgage
Put down a larger down payment
How a person co-sign with you on the mortgage
Questions to ask your lender when getting preapproved
When getting preapproved, ask your broker or lender the following:
how long they guarantee the preapproved rate
if you will automatically get the lowest rate if interest rates go down while you’re preapproved
if the pre-approval can be extended
The bottom line
As you navigate the home-buying process mortgage pre-approval is an important part of this process. If you are pre-approved, it means that a lender has stated that you qualify for a mortgage loan based on the information you have provided. A mortgage pre-approval often specifies a term, interest rate and principal amount. Although not a required step, it is helpful as it can give you a clearer picture of how much house you may be able to afford.