You’ve decided to buy a new Red Deer home. Now what? Before you start calling real estate agents or hitting the web to look for listings, we’d suggest getting mortgage pre-approval.
What is mortgage pre-approval?
Mortgage pre-approval is not an approval for a mortgage. It is “pre” approval. If you are pre-approved for a mortgage, you’re much more likely to be approved for the mortgage.
However, there are factors that can cause the mortgage request to be rejected. Lose your job in the interim, and no one wants to loan you money. Take out a number of credit cards or buy a new car, and your credit score takes a major hit. Lenders are now reluctant to lend you money for a new home. Mortgage rules themselves may change. The classic recent example has been the roll-out of the mortgage stress test that forced many potential Red Deer home buyers to the sidelines.
There may be issues with the property itself, too. Most mortgage lenders only offer loans on residential properties in good condition. If you’re looking at a major fixer-upper, the mortgage lender will probably refuse to loan money to buy that particular property. A rural property or one with a clouded title will probably be declined, as well.
What are the benefits of mortgage pre-approval?
Mortgage pre-approval is a point in your favor as a home buyer. The large amount of paperwork required to get pre-approved is understood by sellers as a form of vetting. They now know that you’re a serious prospect and not just someone curious about how the neighbor’s house looks.
The mortgage pre-approval runs through the same checks that mortgage buyers must go through. This allows you to find out when there are serious problems with your credit report that would cause a mortgage application to be rejected. More importantly, you’re able to take steps to correct it without losing out on your dream home in Red Deer.
A side benefit of mortgage pre-approval is that it tells you how much you’re allowed to borrow. Then you don’t offer more on a home than you can truly pay. And you can limit your tours to properties that fit your budget.
What good is a pre-approval?
There are a few reasons why you should have mortgage pre-approval before you go house shopping. Understanding the associated costs is essential. If you know the maximum you can borrow and the closing costs involved, you can then budget your available cash. Whether you offer more for a down payment or have a larger reserve for home renovations is your decision. You also have a good estimate of what your house payment would be. You can choose a property based on total cost of ownership and reject those that don’t fit your budget.
We’ve already mentioned how pre-approval helps you stand out among potential home buyers. Another benefit of mortgage pre-approval as a home buyer is that it allows you to lock in today’s interest rate. The rate-hold may be anywhere from 30 to 120 days. This rate hold means you’ll only have to pay the promised interest rate on your mortgage if you close in that time period, even if interest rates go up. If interest rates go down, lenders will offer a lower interest rate. It is a clear win-win.
It’s a Process
See mortgage pre-approval as the first step in the mortgage process. Once you’re pre-approved, you can go shop for your new Red Deer home. Then you can be approved for the loan and close on your new home. Talk to our Whalen Mortgage Red Deer experts to learn more about the mortgage process.