Season Livingston

Last week we spoke about the many options available to you while shopping for a mortgage and as promised, this week we are talking pre-approvals and how this should be the first thing you do before looking for your dream home or calling a realtor.

Most people know the pros of getting a pre-approval and most realtors and mortgage brokers will advise you to get one done. A pre-approval gives you a clear target of what you will be able to own while house shopping so you don’t fall in love with something you can’t afford. Another added benefit of being pre-approved is that it gives you a competitive advantage over other buyers who are not pre-approved. When a homeowner is looking at competing offers, an offer from a pre-approved buyer is much more desirable then an offer from someone who has not been pre-approved.

It’s important to know that not all pre-approvals are the same. The different terminology used by different lenders can often be confusing; there are basically three different levels of mortgage approval: pre-qualification, pre-approval and approval. Each one being more rigorous than the previous.

Prequalification
A prequalification is the simplest and quickest for the lender to calculate. It is essentially a mortgage amount and interest rate hold that the lender calculates based solely on the overall financial picture that you provide in your mortgage application. It does not look into past credit history, assets or debt you own. There is no in-depth look at your ability to purchase a home. Some financial institutions only offer mortgage prequalification and this can be tricky as the buyer may think they are approved for the amount they are told only to find out that once the full financial picture is reviewed that pre-qualification is revoked.

Pre-approval
A pre-approval takes the prequalification one step further, instead of calculating the mortgage amount and holding the interest rate for a length of time based solely on the financial picture given by your application, a pre-approval pulls your credit history, reviews everything in detail and even sends documents out to lenders to get a commitment back. These added steps eliminate any surprises at mortgage approval time as any missed items that were not considered on your mortgage application are reviewed before you get a mortgage amount and rate hold. Often the broker can tell you more specific details in regards to your mortgage amounts and get a better idea of what interest rates they will approve you for, in some cases you might be able to lock in a rate that wouldn’t be available to you once the purchase happens. A pre-approval is usually only applicable for a certain length of time and will have to be reassessed if the time expires or changes in your financials occur.

Approval
An approval is a firm agreement with a lender that basically states that if you find a home; they have looked into all of your most up to date financial information and have no issues lending you that amount to purchase that home as long as the home’s assessed value is greater than the loan amount.

Now that you understand the different types of mortgage approval, it is important to be aware of circumstances that may impact or alter your pre-approval when it comes time to purchase your new home. Your pre-approval is a conditional agreement that the lender will fund your purchase as long as your financials don’t change much between your submission and time of purchase. Often things such as changing your lifestyle or credit history may jeopardize your pre-approval. You will want to avoid missing payments, adding debt, changing jobs, moving around your down payment money or co-signing for someone, to name a few. If you can avoid all of these issues, then you will be well on your way to owning your dream home.

So what should you take away from this week’s article? That not all approvals are created equal, make sure when you do go to make the first step you are on the right track. Whatever route you choose know the differences and make sure to ask what service you are getting. Stay tuned next week, as I will be talking about one of my favourite things, payment options and how you can shave years off of your mortgage. In the meantime if you have questions about this week’s article contact me at mortgageminutepe@gmail.com