Purchasing a new home is an exciting time and a task you may be anxious to start with. However, before you begin the house hunting process looking for the perfect dream home, your first step should be to get a mortgage pre-approval. Let’s discuss what the mortgage pre-approval is, why it is so important, and how to complete the process.
What is Mortgage Pre-approval?
Receiving pre-approval for a mortgage is an important step in the home-buying process. This is when you work with a lender to determine how much house you can afford and how much money the lender is willing to let you borrow. If you are pre-approved, you will also receive an estimate of your interest rate as well as a monthly payment.
To receive a pre-approval, a lender will evaluate your current financial situation to determine how much he or she can confidently lend you to purchase that dream home in Guelph. The lender will evaluate many aspects of your finances including your income, down payment, debt, credit number, and more. However, just because you receive pre-approval, it doesn’t guarantee that you can easily purchase a home. It is simply a starting point and an estimation. If your financial situation changes, your credit score drops, etc., before you close on a property, you may not receive the financing or the interest rate your lender offered during the pre-approval process.
Is Pre-approval Mandatory?
Receiving a pre-approval letter from a lender is not mandatory to tour a property. It is not needed if you plan to purchase and finance a home in the near future. However, many real estate agents prefer that you have this letter as it shows that you can purchase the home and it is not a waste of their time or the sellers. Your pre-approval letter helps the lender find properties that fit within your budget. You can look at homes for sale that will not put you in a tight financial position month after month.
Why is a Mortgage Pre-approval Important?
The pre-approval process helps you wisely shop for a home. You will have an idea of how much house you can afford and the price of a property that you can realistically purchase. Once you have found your dream home, it tells sellers that you are in a financial situation to purchase the property and the chance of your financing falling through is diminished.
How do I receive Mortgage Pre-approval?
The pre-approval process will differ depending on the lender. Some lenders will have you pre-approved within 24 hours, while others can take several days. When you apply for a mortgage pre-approval, you will be asked to provide an extensive amount of information about yourself. This will include personal, employment, and income information, as well as current debt and identification that allows the lender to gather your credit number. If information is missing, it can delay the pre-approval process.
You will want to apply for your mortgage when you are serious about purchasing a home on the market. Most pre-approval letters have an expiration date, meaning that after a certain date, you will need to repeat the pre-approval process. Often, you will have 60 to 90 days to place an offer before your pre-approval expires.
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