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Mastering Residential Real Estate: The Ins and Outs of Mortgage Pre-Approval

Purchasing a home is a huge undertaking, especially if you're a first-time buyer. The steps to home ownership – securing an agent, determining a budget, browsing properties, making a selection, and negotiating closing – can be equal parts stressful and exhilarating, but the reward is worth the challenges along the way.

As excited as you may be to jump into the house hunt, there's one huge requirement you can't miss: securing mortgage pre-approval. Without the okay from a mortgage lender that you can borrow the capital you need, you may find yourself in trouble as the process moves forward. Here's what you should know to guarantee the best mortgage rates.


What Is Mortgage Pre-Approval?

Mortgage pre-approval refers to an initial agreement for a mortgage from a lender. As with all loans, eligibility isn't guaranteed; in order to successfully receive approval, you will have to meet the lender's minimum requirements. Pre-approval isn't open-ended, either – your agreement will apply to a set interest rate and maximum purchase amount.

As a part of pre-approval, your mortgage broker will also provide a time period for the given terms, generally between 90 and 120 days. This can be especially beneficial in a variable market; if rates go up, your agreed-upon rate will still apply, saving you thousands over the life of your loan. If rates go down, most lenders will be willing to negotiate a lower rate, ensuring you still get a good deal. Mortgage pre-approval is a free, no-obligation process as well, so there's no risk in taking the plunge.


Seeking Pre-Approval

So, you're ready to buy a home. Now what?

The first step in mortgage pre-approval is to contact a mortgage broker and discuss your options. Come prepared with specific information about your financial situation, including proof of employment and documentation of assets and liabilities. Then, with your permission, your broker will run a credit check to verify credit history and current credit score. This information will then be combined to determine a specific amount and interest rate for which you are qualified.


The Variables in Mortgage Lending

Your personal situation plays heavily into the success of mortgage pre-approval. The outcome is often different from one person to another, varying based on criteria like:

Upon receiving pre-approval, you will be ready to start your house hunt. Be sure to provide all relevant information to your realtor to ensure the neighbourhoods and homes included in your search fit the confines of your mortgage agreement. Note that there's no need to spend the maximum amount for which you are pre-approved; your personal budget, not the mortgage broker's opinions, should dictate how much you are willing to spend on a home.


The Downfalls of Pre-Approval

Despite the value of pre-approval, it's important to understand that being pre-approved is not the same as signing an iron-clad contract. In fact, it's very possible that you may be denied a mortgage after pre-approval, especially if life circumstances change. For example, you may be denied a mortgage if:

  • Your financial situation changes drastically, like job loss or divorce
  • There is something critically wrong with the property you are attempting to purchase
  • The appraisal value is far below the agreed upon purchase price
  • You secure another loan that increases current debt beyond acceptable levels
  • A large expense depletes your assets significantly

With this in mind, always ensure any offer you place on a home is conditional on securing financing.


Start Out on the Right Foot

Whether you're a seasoned veteran or a first-time homebuyer, the process to get mortgage preapproval is a non-negotiable part of a successful home transaction. With a pre-approved rate and dollar value in your back pocket, you can proceed with confidence on the road to the home of your dreams.



Ali Ali 01/26/2019
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