There are many benefits of getting prequalified for a mortgage
- The lender assesses whether your debt-to-income ratio fits the guidelines for applying for a home loan.
- It also provides an estimate of how much you may be able to borrow
- Helps you determine the type of property you can afford
- Is not a commitment from you or the lender. It is a 'general' assessment as your credit history has not been factored into the prequalification
- A real estate agent will know you are a serious buyer if you present your prequalification letter to them
- When you do come acroos that house you've been looking for, you are prepared to purchase immmediately
PRE-APPROVED FOR A MORTGAGE
What makes a good 'pre-approval. Getting pre-approved for a mortgage before you go shopping is a very good idea. Pre-approvals should show exactly what you qualify for in terms of how much money you will be able to borrow based on your financial profile.
Things to look for when getting pre-approved are -
- Your household income - you will be asked for documents to prove your income. You do not want to be 'pre-approved' only to be told after you've made an offer on a property that you don't 'actually' qualify.
- Down Payment and Closing Costs - There are so many costs involved in purchasing a property besides the down payment. Costs such as appraisals, home insurance, PMI insurance, property taxes, legal costs etc. A good lender or broker will talk about this and include these costs when looking at your pre-approval application.
- Rate Hold - if rates are trending down, even if you are pre-approved for a rate, you should be able to take advantage of the lower rate. Alternatively, rate pre-approvals are great if the rates are trending up. Most lenders will secure the lower rate for 90 to 120 days to give you time to purchase a home and close on the deal. Every bank has its own guidelines so be sure to ask.
- Lender Guidelines- a lender will include their guidelines regardless of the mortgage product you are choosing. They should advise you of the different products available and which one will work best for you.
- Negotiating Power - In today's market's, houses are selling very quickly. Often by the time you are ready to make an offer, the house is sold. Being prequalified ensures that your chances of getting an offer in quickly and being accepted are much higher. Your realtor has the ability to negotiate a better and quicker deal which gives you a greater chance of success.
- Monthly Payments - By being pre-approved you will know beforehand what kind of payments to expect, including taxes, condo fees, etc. It gives you more control over how big a house to purchase and keeps you in control of your finances. It takes the guesswork and fears out of purchasing a home. You can approach purchasing a home especially for the first time with confidence.
Prequalification and Pre-Approval Do NOT Mean -
- It is an actual mortgage - Until there is a purchase agreement (a written up contract to purchase a property) submitted to the lender and a written contract to the borrower by the lender, there is no mortgage. This is only a preliminary step so when you do present your offer to purchase to the bank, the actual mortgage process is easier.
- Rate Hold is permanent- Rate holds are temporary and depending on the terms of your pre-approval, you may or may not get the rate you were initially promised. To get a pre-approval that is solid it is important to know exactly what the terms are. A good prequalification/ pre-approval should show you exactly what you qualify for in terms of how much money you will be able to borrow for a mortgage based on your finances.