Mortgage Pre-Approval: Why Does It Matter?

It is possible to save enough money to acquire your real estate property. However, sometimes, the entire process can easily deplete your finances and leave you with debts you had not budgeted for. That is why you should consider securing a loan just in case your savings do not match the expenses.

Getting a home loan, however, is a complex process since it involves several financial assessments. Of all the aspects involved, mortgage pre-approval is at the center of the journey. So, what does it mean to get pre-approved, and why is it important?  As a new homebuyer, here is what you should know about mortgage pre-approval.

What Is Mortgage Pre-Approval?

Home-buying revolves around how much you can afford as a down payment, how comfortable you are with paying the remaining amount, and how much loan you can secure.

To most people, this process begins in the lender's office rather than in the seller's house. That is because it is in the lender's office that you can weigh your financial muscles against the home's market value.

Mortgage pre-approval, therefore, is the process through which a lender conducts a thorough preliminary review of your finances to determine if you qualify for a home loan. During the process, the lender looks at your monthly income, credit score, tax relationship, debts, and

overall financial well-being to know if you are fit for the loan. If you turn out fit to borrow, the lender issues a written statement with all your loan terms, including how much you qualify for, your interest rate, and your expected down payment.

From here, you can start house hunting since the letter gives you an ideal range of home prices to focus on. It is also vital to note that the pre-approval letter is valid for up to 130 days in most Canadian markets. That means you should start scouting for homes immediately after you get pre-approved to benefit from the located interest rate.

Why Do You Need A Mortgage Pre-Approval As A Buyer?

Getting mortgage pre-approval is a win-win card for the buyer and seller entering the home purchase agreement. 

However, it is more beneficial to the buyer in many ways, including:

1. It Lets You Know Your Financial Position

Buying a home has so much to consider, from the location to must-haves in the house and deal breakers. However, one of the significant factors you will consider is the overall costs. Since your first home is a substantial investment, you will want to pick a property you can afford.

Getting pre-approved gives a clear picture of what you can pay from your money, how much you can borrow, and how to adjust your budget. Since setting your budget to match home-buying costs can be tricky for a first-time buyer, talking to a lender beforehand can save you the disappointment of failing to pay off the debts.

2. It Gives You a Competitive Advantage Over Other Buyers 

A mortgage pre-approval makes an attractive buyer to sellers more than your competitors. That is especially true when buying in a seller's market with low inventory and high demand. In such markets, sellers are more likely to consider buyers with a robust financial backup than those without. And the best way to win their trust is to have a pre-approval letter from a recognized mortgage facility.

3. It Speeds Up the Home-Buying Process

On average, buyers in Canada choose to close their new house within 30 to 60 days. While both parties may choose a more extended closing period, sometimes the delay is caused by minor things such as the pre-approval process. Therefore, getting pre-approved can shorten the closing period significantly and allow you to move into your new home as fast as possible.

Most sellers also work with pre-approved buyers since they already know what they want regarding home prices. That means negotiating the deal and agreeing will take a short time. Pre-approved buyers can also compromise on some home aspects if they love the house, making the deal more profitable for sellers.

4. It Eliminates Potential Barriers

During the pre-approval process, the lender helps you to identify and remove all the barriers that can limit you from accessing loans in the future. They include inaccuracies on your credit score report, debts, and less down payments. Once you complete the pre-approval process, you will have a clean financial record, increasing your chances of borrowing more money. Remember, private mortgage insurance companies will also agree to work with you if you already have a pre-approval letter from your lender.

The Bottom Line

Mortgage pre-approval is crucial for anyone planning to enter the housing market. The process can be straightforward or challenging for you as a new homebuyer. However, to make it smooth, ensure you gather all the necessary information and documents, such as proof of income, credit score report, employment verification, and personal identification documents. With these requirements ready, you can start the pre-approval process today and see yourself in a new home soon.