Are you a serious buyer?
The new normal has led people to re-evaluate their lifestyles, change neighbourhoods and re-assess personal goals. This is also why many are looking to buy homes. In a competitive market such as the Greater Toronto Area, how can you ensure that you’re prepared?
The hallmark of being a serious home buyer is getting everything planned out and prepared. Even if you’re a first-time home buyer, nothing will catch you off guard, if you’ve done diligent research and ample preparation. One of the most crucial steps that’ll prove you’re a serious home buyer is getting your mortgage pre-approved.
What is mortgage pre-approval?
Avoid being caught ill-prepared by getting pre-approved for a mortgage. Once you’re pre-approved, a mortgage provider will prepare a commitment to lend a specified amount. It’s best to get your mortgage pre-approved when you’re planning to buy a home within at least three months in advance.
Applying for a mortgage pre-approval is free. You’ll be required to send your broker some personal information such as your employment history, income, assets and liabilities, as well as your estimated amount for your down payment. They’ll also pull your credit report to review your financial capabilities.
This is, however, different from mortgage pre-qualification. Mortgage pre-qualification is a tentative assessment of how much a mortgage provider is willing to lend you. This involves a more informed figure, as compared to calculating your own mortgage payment. Unlike a pre-approval, this does not entail commitment from a lender.
Why you need to get pre-approved for a mortgage
If you’re still unsure about getting your mortgage pre-approved, here are more reasons why you need to:
1. You’ll save time and money
You could save a lot of resources when you get your mortgage pre-approval. It’ll save you time during your home buying process, since you’ll be looking at homes within your financial parameters. Now that you have some knowledge of your financial situation, your real estate agent will see that you’re a serious home-buyer and will provide you a service specific to your needs.
Getting pre-approved will also save you money. Pre-approval is usually a locked-in period that lasts up to 120 days, depending on the lender. If Canadian mortgage rates go up during that period, the advantage is that you’re still qualified for the locked-in rate. If rates go down, your mortgage broker can negotiate on your behalf.
2. You’ll be able to budget and make a better plan
Once you get pre-approved, you’ll know your mortgage affordability and have a better idea of your timeline and budget. This’ll help you manage your resources, plan and prepare for possible monthly payments, as well as considering other expenses of buying a home.
3. More negotiating power
Lenders don’t usually offer their best rate upfront, but your pre-approved status can already give you more power to negotiate. This serves as proof of solid financial banking and allows you to make an offer that’s more favourable, considering your financial circumstances. The seller may be more likely to give your offer more consideration.
Here’s a bonus: A pre-approval can help you win a bidding war. With bidding wars becoming more common, especially in hot housing markets such as in the GTA (Greater Toronto Area). A pre-approval will let your real estate agent know that you’re a serious home buyer – which could be the difference between winning and losing the bidding war.
Where to get pre-approved for a mortgage
a. Mortgage lenders
Mortgage lenders are institutions that lend money to you, such as banks, mortgage investment companies, credit unions and private individuals. Different lenders usually offer you different rates for different situations.
b. Mortgage broker
A mortgage broker works with lenders on your behalf and based on your financial circumstances and needs. They know the ins and outs of the business and can ensure that you’ll receive the right product for you.
Take note that some mortgage brokers may charge a fee. They may or may not receive commission from lenders.
Home buying milestone: Getting pre-approved
There’s no downside in getting a pre-approval for a mortgage. It’s a home buying milestone that you’ll need to achieve in order to get your dream home without driving yourself to bankruptcy. It’s a simple step that’ll not only set you apart from other home buyers, but will also save you thousands of dollars.