MEET YOUR NEW BEST FRIEND: THE MORTGAGE PRE-APPROVAL
A Mortgage Pre-Approval is when your Mortgage Broker will submit your application to a lender for approval prior to you purchasing a home. The lender will then take a preliminary look at your mortgage application and advise you are pre-approved up to a certain purchase price. A pre-approval is not a binding commitment, but rather an indication that the lender is prepared to give you a mortgage once a suitable property has been found and your application details have been confirmed by supporting documents.
A Mortgage Pre-Approval differs from a Mortgage Rate Hold in that the lender actually looks at the details of your application, whereas a rate hold is just that, a rate hold without any examination of your qualifying details.
The Benefits of Your New Best Friend:
A potential borrower fills out a mortgage application with a general purchase price range in mind. This amount may change as you start property shopping, but it’s important to establish a maximum price range so you’re shopping smartly. The mortgage lender will then review your application details, this includes credit score and repayment history, downpayment sources (if applicable) and depending on your employment type they may ask for upfront documentation to confirm income amount. The Mortgage Pre-approval process usually takes 1-3 days.
The Good Things in Life Are FREE:
Most Mortgage Brokers are happy to obtain a pre-approval on your behalf as it not only provides you with a price range to shop in, it also allows you to familiarize yourself with some potential mortgage payments at different purchase prices giving you the confidence to shop smart. Your Mortgage Broker will also be able to provide you with a list of supporting documents your lender will request once you do find a property to purchase.
A Pre-Approval is not a Mortgage Approval Guarantee:
A Mortgage Pre-Approval is pretty much based on a borrower’s credit, income and assets. While you may have obtained a Mortgage Pre- approval, it does not guarantee an approval when you actually find a property. The lender may have said yes to your income and credit history, but they still reserve the right to decline the property you pick. There are a variety of reasons why a property may be declined, including but not limited to; a purchase price not supported by an appraisal, homes with structural damage, or a home having a feature which may limit the future marketability of the property- such as a large farming acreage or a previous grow-op.
The other clause when it comes to pre-approvals is the approval response may change if there are any material changes to the buyer’s financial picture. Specifically if the borrower’s income or downpayment suffers an unexpected decline or personal debts take a sharp incline. Always consult your Mortgage Broker before making any big changes to your financial situation to see if it will affect your pre-approval.
No Guarantee Means You Still Need Protection:
Because your Mortgage Pre-Approval lender can still decline the property, you need to ensure you are still protecting your deposit by having a financing condition on your Offer to Purchase. Prior to removing your financing condition, you are allowed to get your deposit back if you cannot obtain a Mortgage Approval for that property.
How Long Do They Last?
Most Pre-Approvals are usually valid for 90-120 days, after which time the lender may require updated information in order to extend the rate hold. Keep in mind, although the lender has already pre-approved you, they will always reconfirm the details that led to the initial approval decision. If any part of your financial picture has changed- whether it’s credit, income or assets- it is the lenders prerogative to decide not to extend your Mortgage Approval.
Haven’t Found a New Best Friend Yet?
If you would like more details on how a Mortgage Pre-Approval can benefit you, please do not hesitate to contact The MortgageGirls.
* This data is provided for information purposes only and is updated daily by Mortgagegirl. Posted rates are subject to change without notice. O.A.C. E&OE.