If you've been keeping up with my Home Buying Series over the past few Mondays, you'll already know if you're ready to buy, how to save a healthy down payment and how to take advantage of the homebuyer's plan (HBP). Once you have your down payment saved up and you know where exactly the money is coming from you are just about ready for the fun part (bring on the house hunting), but there's one last step you want to take to ensure everything goes smoothing....getting pre-approved for a mortgage.
Why exactly do you need to get pre-approval?
- Lock-in your interest rate, so you won't get stuck if rates go up (Usually, the quoted rate is good for at least 120 days and if rates end up going down your lender will meet the new lower rate.)
- Set your spending cap (Keep in mind that banks will often lend you more than you really need so you should already have your budget figured out. Just because they are willing to give you that much money does not mean you need to take it all.)
- Save time during the buying process (It can be quicker to get your final mortgage approved if your lender has already given you pre-approval and this also looks good to a seller if there are multiple offers.)
- Know your monthly payment (Based on the interest rate, length and size of your mortgage you'll get a pretty good estimate of how much you'll be paying each month, and that makes it easier to stay within your comfort level.)
- Limit your stress (It will be a better buying experience if you know the houses you're looking at are in your price range and that the bank is willing to lend you the funds.)
- It's free (Sure you'll have to spend some time getting the required info together and meet with a broker but it won't cost you anything to get pre-approved and you're not committed to anything.)
Your broker will need to know all your deep dark money secrets so be prepared and gather up your documentation. They will run a credit report so will need your SIN number, pay stubs or a letter from your employer to prove your income, and account statements showing proof of your down payment. Side note; do most of you have your SIN number memorized? This is a problem for me! I'm usually good at remembering numbers (my credit card, phone number, etc.), but cannot seem to get my SIN to stick in my brain.
Now, getting pre-approved for a mortgage is great and definitely the way to go, but it does not guarantee that the bank will give you the funds for the house you want. There are certain situations where the bank will reject your final approval. Reasons for this can include a change in your financial position or an appraisal coming back at a lower value than your offer. To prevent this, you'll want to avoid doing anything that will change your financial situation such as taking on more debt or changing employment (if you can avoid it obviously).
Not everyone gets mortgage pre-approval, but I think it's an essential step before you start seriously looking for a house. It's relatively straightforward and won't cost you anything but will give you peace of mind knowing that the homes you are looking at are within your budget.
Check out the other posts in this series:
1. Home Buying Series - Renting vs. Buying
2. Home Buying Series - Saving Your Down Payment
3. Home Buying Series - Home Buyer's Plan (HBP)
4. Home Buying Series - Mortgage Pre-Approval
5. Home Buying Series - House Hunting
6. Home Buying Series - Closing Costs