When you begin the home buying process, one of the first things you need to do is get pre-approved for a mortgage. A mortgage is a loan from a bank or other financial institution to help you purchase a property. This will ensure that you are only looking for homes in your budget and not searching or falling in love with a house you can’t afford. Getting pre-approved for a mortgage shows to your Real Estate agent that you’re serious about buying a home and can make the overall process much smoother.
First, let’s discuss what a mortgage pre-approval is, and how you go about getting one. A mortgage pre-approval is when a lender or mortgage broker has looked at your finances and determined how much money you can borrow, how much you could pay per month, and what your interest rate will be. The finances they look at could be income, debt, your assets and/or your credit history. Getting the right mortgage for you can be a lengthy process. Different lenders may have different interest rates and conditions for mortgages. You should talk to several lenders to make sure you’re getting the best mortgage and interest rate possible.
To get your mortgage pre-approval, most lenders and mortgage brokers will look at three main things: what you own (your assets), your income, and your debt level. You will need to provide identification, proof of employment, proof that you can pay for the down payment and closing costs of a home, any information you can provide about your assets (car, cottage, etc.), as well as information about your debts and any financial obligations you may have (credit card balances, car loans, student loans, etc.).
The Toronto Real Estate market has been booming in 2021 and getting a pre-approval in place will benefit you in the long run. When you are searching for a home, a Seller will not be inclined to take any offers with financing conditions, making this a big reason to get pre-approved for a mortgage. Once you’ve been pre-approved for a mortgage, you can lock in your interest rate for about 90 to 120 days. So if mortgage rates go up during that time frame you will qualify for the locked-in rate.
Here are 3 main reasons why we believe you should get pre-approved for a mortgage:
Creating a relationship with your bank
A relationship with your bank can help a lot in the process of buying a home. Meeting with your bank, or an independent mortgage broker, can help you prepare and understand what needs to be submitted in order for you to be approved for a mortgage. Being able to secure funding is a key part of the process when it comes to buying a home.
It is completely up to the bank to decide how much money they are willing to lend to you, so meeting with them and ensuring you are all set to go with a price is one of the first steps you should take when starting your home buying process. Your bank will help you go through the process and tell you if there are any discrepancies on your account that should be fixed before you can be approved.
A mortgage specialist will advise you on everything you need to ensure you’re not missing anything. They will go over all of your finances to see if you need to get anything solved before you can be approved. When you have a relationship with your bank they can help you with everything that is needed.
Know what you can afford
Meeting with your bank will give you all the information necessary to help with your home buying process. They will look at all the paperwork and figure out your loan amount and give you a budget for a mortgage. You will need this information before you start house hunting to ensure you don’t put an offer in for a house you can’t afford.
Knowing your budget can help your Real Estate agent, and make their job a lot easier knowing exactly what price range to look for. By getting pre-approved from the very start, you will be able to spend the entire viewing process looking for a home and being able to bid for the house if it’s within your price range without having to worry. Getting into a bidding war without a pre-approval and offering a price that you don’t know you can’t afford could essentially end up wasting both the Seller’s time and yours.
Go in firm on a deal
When you get pre-approved for a mortgage, this will determine what amount of a loan the bank can give you. Toronto’s market is hot right now, and without a proper pre-approval in place you won’t have the confidence to know your budget and be able to go in firm on a deal if necessary, and that can cost you the entire property.
When it comes time to make an offer on a home, the fact that you are pre-approved for a mortgage will improve your chances in a competitive offer situation. In a multiple-offer situation, which is very common in Toronto, a mortgage pre-approval could be the difference between a successful and unsuccessful sale. When a Seller gets multiple offers they will always go with the more secure option where they know that the Buyer will have no problem financing the purchase. Having a mortgage pre-approval shows to the Seller that you are serious about buying a home and that when it’s time to close you will have the money.
As you begin your home buying process, you should get a head start on getting pre-approved by gathering the necessary documents and meeting with your lender or mortgage broker. In the end, getting pre-approved is necessary in order to purchase a home. It is better to get it done sooner rather than later to ensure a seamless transaction.
Use our mortgage insurance calculator and our mortgage payment calculator to get a better idea about what mortgage will be right for you.