In today’s hot housing market, things can move pretty quickly, and not just in big urban centres like Toronto or Vancouver. Here in the Muskoka region, we see home, condo and cottage purchases that get pretty competitive, with multiple offers coming in all at once. Some eager buyers may be inclined to submit their purchase offers without certain conditions such as financing or home inspections, which could put them at risk. Let’s take a closer look at the financing aspect, particularly around mortgage pre-approvals and why it’s an essential step in your property purchasing journey. We’ve outlined 10 things to do so you’ll be more than ready when it comes time to buy that new home.
What is a pre-approval?
Mortgage pre-approvals are conducted by your bank, credit union or other lenders to determine your financial capability to carry a mortgage loan, and to give you an estimate of the amount of the loan they will approve. Not only does this help you narrow down your house-hunting search to find properties within your budget, but your lender can give you a good idea of what interest rate you can expect to pay as well. While a pre-approval can make your home-buying process run more smoothly, keep in mind that it doesn’t happen overnight; it’s a deep dive into your financial background and there’s a lot of paperwork involved. Let’s learn more about mortgage pre-approvals and why you should get started sooner than later.
Here are your top tips to better understand the process:
- Gather up all your documents – Your lender will review your credit score, as well as ask for pay stubs, financial records, credit card bills, debt and asset lists, income tax information and more in order to determine if you are a safe financial bet.
- Avoid ‘online’ mortgage pre-approvals – Make sure you connect with a real finance expert during this process.
- Feel free to shop around for your mortgage – Mortgage lending is a competitive business, and you have every right to shop around to find a lender and/or rate that works best for you.
- Get a written copy of your pre-approval letter – Although your pre-approval is not a legally binding document (it’s more of a guideline), make sure you get it in writing and don’t settle for a verbal agreement.
- Read the fine print – There is a lot of legal, financial terminology in a pre-approval letter, so be sure you understand it all before going forward with your offers or purchases.
- Start your house hunting – Just don’t forget to stay in your lane when it comes to looking at properties that fall into your budget as outlined in your pre-approval. If you go beyond that amount, you may find yourself without enough financing to close the deal.
- Don’t waive the financing condition – Even with a pre-approval in hand, you can still ask for a financing condition when you put in your offer. While some people might feel fully confident in pushing the offer through without it – they do so at their own risk. Remember that the pre-approval is not binding, and your lender will need to appraise the home’s value and so they can certify there’s enough equity in case of a default on the mortgage.
- Don’t change up any life events – At least between the time that you got your pre-approval and you are house-hunting, it’s not a good idea to change jobs, make a big purchase, take out a new credit card or loan…or anything else that can impact your finances, thus impacting your mortgage pre-approval. The lender may decide that you no longer meet their qualifications, and you could find yourself suddenly without a mortgage approval.
- Make sure you understand all the details of your mortgage – Especially if you are a first-time home buyer, there’s a lot to know and understand about a mortgage. For example, you need to know about incentive programs, interest rates, fixed vs. variable mortgages, payment schedules, amortization, and so on.
- Work with a real estate lawyer –Be sure to work with a reputable real estate lawyer, who will review all the necessary paperwork with you, including your mortgage documents.
Whether this is your first home purchase or your 12th, getting pre-approved is an important step you don’t want to miss out on. There’s nothing worse than seeing someone’s dream home or cottage purchase fall through because the financing wasn’t properly sorted out. Be sure to connect with Ares Law for all of your real estate transactions. As independent legal advisors, we’re the only ones in your home-buying process who are completely impartial. It’s our job to make sure you and your investment are protected. Call our Bracebridge office today to make an appointment at 705-645-8743. We’re here for you every step of the way.
