Triston Rans - Calgary Mortgage Associate

The Importance of Mortgage Pre-Approval

I wish to buy a home and want to start looking. How important is a mortgage pre-approval in the home buying process?

Obtaining a proper mortgage pre-approval prior to beginning your house hunt is extremely important as it determines the maximum mortgage amount that you will qualify for. This enables you to shop in your appropriate price range, and saves time in the negotiation process. It will also hold the interest rate for 90-120 days, guarding you against rate fluctuation, ultimately providing peace of mind during the home-buying process.

You can be “pre-qualified”; this term is often confused with a “pre-approval”. But this really only means that someone – including yourself - has taken a general look at your income versus expenses and plugged them in to a debt-to-income ratio formula. Pre-qualifying before you start looking for a home gives you a general idea of what you can afford. It will not, however, lock-in an interest rate for you and does not typically include an analysis of your credit report or an in-depth look at your true ability to buy a home.

When you are “pre-approved” for a mortgage, it means a mortgage professional has looked closely at both your credit report and your income. They can determine that you actually qualify for the loan, the maximum mortgage amount, which programs you qualify for, and discuss the interest rates offered for different types of loans. At this time, you will be asked to provide documents to verify your application information including income and potential down payment confirmation. Once pre-approved, you can start shopping for a home with confidence about your buying power. However it still isn’t a guarantee that the lender will approve the loan.

When you have made an offer on a home, the final step is for the lender to issue a “mortgage commitment letter”. This is done after they have approved BOTH the house and you, as the property must also meet the lender’s guidelines. Because of this, it is very important to include a financing condition in your offer to purchase. This condition allows you the necessary time to get the mortgage approval and the commitment letter from the lender. This letter is only issued when the lender is sure they will lend. It will contain the terms of the loan and any remaining conditions that will need to be met in order to obtain the financing. Ideally, this should be reviewed in person with your mortgage professional for proper clarification.

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