Much of the time, individuals who have obtained pre-approval for a mortgage have a distinct advantage over those who have not. Becoming pre-approved for a mortgage shows lenders and sellers alike that you are serious about making this investment into your future and have the means to back it up with the right funds. But if this is your first time entering into the responsibility of homeownership, the concept of mortgage pre-approval might be a bit perplexing. So, we’re going to break it down into the basics and explain why getting pre-approval is important, as well as how the process works.
What Does it Mean to Get Pre-Approved for a Mortgage?
Mortgage pre-approval is not a promise of getting a mortgage. What mortgage pre-approval does is show you how much of a loan you qualify for, based on your financial situation, credit report, and other personal information.
Who Offers Mortgage Pre-Approval?
Lenders who facilitate first mortgages are the only ones who can offer pre-approval processes to their clients. How much you qualify for with one lender does not reflect how much you may qualify for with another, as each lending institution offers different rates and judges based on differing parameters. If you’re seeking a Toronto second mortgage, pre-approval is unnecessary.
Why Get Pre-Approved for a Mortgage?
An offer made with a solid pre-approval from a reputable lending institution carries with it greater negotiating power than offers made without pre-approval. A seller might even be willing to lower their price for you if you have the backing of a pre-approval on your side. This shows that you are likely good for the money that’s being asked and can make your payments.
Will Pre-Approval Guarantee I’ll Get a Mortgage?
Nope! While pre-approval is still an important step that will reinforce the seller’s confidence in your ability to pay, it does not guarantee that you will be ultimately approved for a mortgage loan. If you go on to make any large purchases, for instance, this will impact your debt-to-income ratio. The debt-to-income ratio needs to remain favorable to qualify for a mortgage.
What Do I Need to Apply for Mortgage Pre-Approval?
To get the application process rolling, prospective buyers should submit an application with the lender of their choice. As part of the application process, you will be required to submit identifying documents, financial documents and statements that will give the lender a snapshot of your current situation. You may be asked for a copy of your license or Social Security card, banking statements, W-2 statements, paycheck stubs and proof of address (like a utility bill in your name).
Mortgage pre-approval is a great step to take on your path toward owning a home. If you have the right documentation on-hand and also have a rough ideas as to how large a mortgage loan you are going to need to meet your goal, you will have an easier time of the process.