Getting a mortgage can be a stressful process. In fact, it is one of the most important financial decisions that a person will make, so a little stress is expected. One easy way to relieve that stress and avoid mortgage problems is to work with a mortgage professional to understand the entire process and be prepared. The first step is getting a mortgage pre-approval.
The process of getting pre-approved for your mortgage is actually relatively simple, but it does require some effort on your part.
Understanding Mortgage Pre-Approval
A pre-approval gives you a clear idea of where to go next in the home-buying process. You’ll find out how much money you can spend on a home, an estimate of your mortgage payments, and be able to lock in a mortgage rate for up to 120 days. This means that if interest rates change while you’re still browsing the market, you will still be able to retain your original rates. And if rates happen to decrease during that period you’ll also benefit from the new reduced rate!
The first preliminary item that we’ll check is your credit report and score. One benefit of working with a Mortgage Broker is that we only pull your credit once even though we can send your application to multiple d lenders. (remember every time you get a credit check your credit score is slightly impacted). This will give you an idea of what mortgage and what amount you could get from a lender, and will give you time to address any issues that you may need to work on in order to be approved.
Personal Information You Will Need
You will need a number of things when you sit down to get approved. Your mortgage professional will let you know exactly what you need for your specific scenario. Common items you'll need include proof of your income. You’ll want to have a record of all of the income that you have received in the last year, and the previous year if you have the information. Things like your most recent pay stub, T4’s, and any other recordable income are important for the lender to see how your income is stacking up. Another thing to gather is information on your personal assets. Your lender will want to know where and if your money is tied up, what savings you have, investments, or any other assets like vehicles, or existing residences you own.
The final term you’ll need to know is “mortgage commitment.” If you are approved by a lender and you know the property you will be buying, you will engage in a mortgage commitment. Your loan information will be submitted and approved, and you will engage in a commitment to yourself and your lender. It is also important to note, that just because you’ve been pre-approved it doesn’t guarantee your mortgage will be approved- there are certain conditions that must be met depending on the home that you’ll be making an offer on.
Only after you’ve been pre-approved, you’ve found the perfect home and then you’ve submitted an offer that was accepted, now you can complete the loan!
A new stipulation has come into place for Canadians purchasing homes. If you’re in the process of buying a home, you will be subject to completing a stress test. This is something that checks your ability to stay financially secure if interest rates jumped over your current rate. Lenders are required to screen borrowers using qualifying rate of 5.19% as of February 5, 2020. This essentially means that you must qualify for a mortgage at an interest rate of 5.19% even though you will be paying a much lower rate closer to 3%.
Things to Consider
A mortgage is a huge responsibility and can take many years to pay off. That is great because it shows reliability, improves credit and allows you to live in a house of your liking while also building equity.
That being said, it would be unwise to jump into a mortgage without seeking the advice of an accredited mortgage professional.
Check out My Mortgage Planning app on the App Store and Google Play Store. Here you can calculate payments, calculate affordability, and chart out your payments to see how much will go to interest vs principal over time.
If you have any further questions about mortgages, or are looking to make the next step at getting pre-approved, be sure to contact me and I can help you through the entire journey!