Mortgage Pre Approval: How To Get One?

Mortgage Pre Approval

What is the purpose of mortgage pre-approval?

So you would like to buy a house soon. Maybe you called a real estate broker and they asked you if you had a pre-authorization before they started a visit with you? Don’t take offense, it’s very common and quite normal, and even to your advantage, here’s why.

Pre-approval as an element of negotiation

Imagine that you have a house to sell; good news, two identical offers for purchase have been made on your house! One of the two potential buyers is pre-approved by the bank and the other is not yet pre-approved. Which of the two offers do you most want to accept? Obviously, you would prefer to accept the buyer’s offer that is pre-approved by the bank.

We cannot say that this is a crucial element in the negotiation, but pre-authorization certainly gives you more credibility as a buyer.

Pre-authorization allows you to lock in a rate

A pre-approval is also useful to lock in a mortgage rate. Generally, it is possible to lock in this rate for 3 to 4 months. What’s interesting about a locked in rate is that you are protected if rates rise, and if rates decrease, you are entitled to that rate decrease.

It is possible to reserve a rate up to one year in advance; however, when a rate is reserved so far in advance, it will be increased slightly. For example, we could get you a rate of 3% for 120 days, or we could get you a rate of 3.25% reserved for one year.

Allows you to get an idea of your budget

The Canadian Government continues to tighten mortgage rules, it gets more and more difficult for people to buy a house. Pre-authorization will allow you to know how much you can afford to pay for a house, and you will also have an idea of how much your monthly payments will be.
You’ll be ahead of the curve when it comes time to get the financing for your home

When you make a promise to purchase, there are at least two conditions that are found in almost all promises: the first one is that the building must be inspected and that nothing major is discovered during the inspection, the second condition will be to obtain the funding. A pre-authorization is not a certificate that allows you to skip the financing condition; you still need to get the financing for that house.

For both conditions, there will be a delay. Until both conditions have been met on time, the promise to purchase is not completed. In other words, it is important to get the funding as soon as possible. Pre-approval is a good thing because it allows your mortgage broker to get ahead of the curve on the file and the documents to be obtained.

Mortgage pre-approval is often the first step for a house purchase

I know many real estate brokers who only want to work with pre-approved clients, and honestly, I understand why. Buying a house is not easy; several factors could prevent you from buying. For example, your credit is not good enough, you do not have enough money for cash down, you have too much debt, etc. It is to avoid wasting their time and losing yours that realtors will often ask you to be pre-approved.

Ensure that your credit is impeccable

During a pre-authorization, we check your credit. This will allow you to find out if your credit is good. Also, it is possible that you have a credit problem without knowing it. For example, you may have very little credit history, an old debt that still appears unpaid, or an old collection still appearing on your file six years later. These kinds of situations happen frequently and often it is possible to solve them. The only problem is that making updates to your credit report can take a few weeks.

Pre-authorization will allow you to resolve this type of problem in time and ensure that there are no unforeseen factors that prevent you from fulfilling your dream of buying a home.

By the way, here is one of the reasons why I recommend that you consult a mortgage broker for pre-approval rather than inquire at your bank. At the bank, you often deal with generalists who can advise you on RRSPs, TFSAs, insurance, credit cards, mortgages, etc. Some are excellent advisors; however, their knowledge is on several topics. They are not necessarily experts when it comes to talking about mortgages or credit enhancements. As a mortgage broker, our job is to assist our clients in obtaining financing for the purchase of a home. This makes us specialists in the field. Therefore, if your credit is ever affected by a consumer proposal or bankruptcy for example, we know very well what to advise you to improve it.

How do I get a mortgage pre-approval?

Getting a mortgage pre-approval is very simple and quick to obtain, simply contact a mortgage broker and discuss it with them.
How long do I have to wait before getting pre-approval?
If your credit and financial situation are in order, you can expect to have a pre-authorization in 24 to 48 hours.

Required documents

Documents are optional, but highly recommended: They allow us to calculate more accurately how much you can borrow to buy a home. I ask my clients to bring with them their tax papers from the last two years. More specifically, I ask for these documents:

  • Most recent pay statement
  • Provincial or Federal Notices of Assessment for the last two years
  • Bank statement (to demonstrate down payment)

Conclusion

In short, pre-authorization is not very complicated to obtain, it’s free of charge, you will avoid unpleasant surprises, and it will give you credibility as a buyer and allow you to lock in a good rate. Don’t hesitate to contact me now to get pre-approval! 438-688-3017

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