Tag Archives: pre-approval

home_loan_1

Mortgage pre-approval – what is it and when should you get it?

Latest News


Mortgage pre-approval – what is it and when should you get it?

SPONSORED CONTENT

Buying a house is an interesting time in one’s lifetime, and why shouldn’t it be? You’re making what’s likely to be the greatest purchase in your whole life, and it’s somewhere you could be living for the following decades.

However, getting approved for a loan and finding a homes you can afford is tricky at the best of times, and without proper guidance from a home loan lender, you could be going totally unaware, risking to find your dream house only to find that the lender won’t approve you.

The lending company may consider you won’t be able to afford the property or judge the property itself as too big of a risk to take on. You could avoid this situation by ensuring your mortgage pre-approval prior to begining your home search.

What is mortgage pre-approval?

Mortgage pre-approval is basically an initial assessment from the lending company where they agree, in principle, only to lend you a certain amount to buy your property.

In essence, a mortgage pre-approval serves two purposes:

  • It indicates just how much the company will lend you, and what type of house you can afford to buy
  • It establishes your financial position with yourself and the lender

Contrary to many misinformed first-time homebuyers, a pre-approval is not a binding guarantee of investment – things that may still change during the homebuying process can affect your ability to secure a loan. However, it is typically a smart move to get pre-approved before settling on a property to buy, because it can give you a much better answer to the question: “Can I afford to purchase my dream home?”

When to get pre-approval

Home pre-approval letters are usually valid for 60 to 90 days. Lending companies put an expiration date on these letters as your credit profile and finance could change. When a home loan pre-approval expires, that means you will need to fill out a new mortgage application and send updated paperwork to receive another one.

If you’ve found an ideal property and suspect you might have some issue getting a loan, going through the pre-approval process can help you identify credit issues – and potentially give you time to tackle them.

The sooner, the better – when you seek pre-approval six months to one year in advance of a serious home search place you in a stronger position to improve your overall credit score. In doing so, you will have more time to save for closing costs and down payment.

When you’re prepared to make offers, sellers often ask about a mortgage pre-approval and, in some circumstances, proof of funds to show that you’re a genuine buyer. In major housing markets, home sellers have an advantage as there is a strong buyer demand and a restricted number of houses for a sale – they may be less likely to accept the bid without pre-approval letters.

The pre-approval process

Applying for a home loan can be both nerve-wracking and exciting, no doubt. Some online lending companies can pre-approve you within hours, while some can even take days. A pre-approval interval depends on the complexity of your finances and on the lender.

New-home buyers will need to fill out a mortgage application. That includes identifying information, as well as social insurance number so that the lending company can pull your credit. Even though a mortgage credit check counts up as a hard probe on your credit reports – which may impact your credit score – if you’re shopping for several lenders in a short amount of time, the combined credit check counts as a single inquiry.

Here’s an example of a uniform mortgage application. If you’re applying with a co-borrower or with your spouse whose income you need to qualify for the mortgage, both candidates will require to list employment and financial information.

  1. Terms of the loan and type of mortgage
  2. Purpose of the loan and property information
  3. Borrower information
  4. Employment information
  5. Monthly income and combined housing expense information
  6. Liabilities and assets
  7. Details of the transaction
  8. Declarations

Can I get multiple pre-approvals?

Doing multiple pre-approval in a short amount of time can leave a mark on your credit history, since the lending company will usually run a credit check, at least with a full pre-approval assessment. In doing so, you will leave an inquiry on your credit history.

What are the chances of getting dismissed after a pre-approval?

If your financial or personal status changes between pre-approval and your final application, your pre-appproval will most likely have to be reassessed – which can mean anything from:

  • You receiving a lower income
  • You or your spouse losing their job
  • Having to spend your deposit on an emergency
  • A change in the property’s condition
  • A change in government policies and more

Not to mention that changing interest rates, such as the ones we experienced in 2019, can also influence how much you can borrow. The lender will typically evaluate your repayment ability over the life of the theoretical loan based on their own usability defence – increasing interest rate might mean a once-approved request is denied, due to you being a risk of not meeting higher payments.

What happens next?

The lending company is required by law to provide a document called loan estimate within three business days of getting your completed mortgage application. The document notes whether the mortgage has been pre-approved and summarizes the loan amount, types and terms of the mortgage, estimated interest, interest rate and payments, estimated closing costs (even lender fees), an estimate of house taxes and homeowner’s insurance.

If you happened to be pre-approved for a loan, your file would eventually transfer to a loan underwriter who will check your documentation against your loan application. The underwriter also has to ensure you respect the borrower guidelines for the specific loan program for which you’re applying.

SHARE  

Featured Products


Jesse Abrams Homewise

How to navigate the mortgage process during COVID-19

Latest News


How to navigate the mortgage process during COVID-19

Jesse Abrams Homewise

Over the last few months, we’ve seen our world transform at the hands of a global pandemic. We’re living in very different times where meeting face-to-face isn’t really an option. Despite the new reality, the priority of taking care of our personal finances is one thing that hasn’t changed.

When it comes to getting a mortgage, there’s no shortage of demand right now. In addition to those looking to refinance or switch to the very low rates available, there are many Canadians who purchased homes before the pandemic who are looking to get approved. Further, the real estate market is beginning to heat up again, therefore mortgage demand is expected to rise even further. The good news is that despite the current situation, there are great options available to apply for a mortgage without having to leave your home.

In the face of COVID-19, operations and procedures across the mortgage industry have been forced to adapt and do business virtually. With many large financial institutions not exactly built for online, this has lowered efficiencies and increased wait times for many customers. Traditional brokers are also facing this dilemma. Many of them don’t have the infrastructure to facilitate the mortgage process outside of their offices, which has prompted a shift toward mortgage technology companies. For example, we have seen a 400-per-cent increase in site visits over the last three months.

Mortgage tech companies are a popular choice and have been resilient because they were already built to streamline the process digitally, while still having advisors to support clients throughout the process. People are looking for contactless options and these companies have been able to deliver an efficient way to get a mortgage without delays, often with better results.

Regardless of the route you choose, here are a few things to keep in mind if you plan to refinance, switch or apply for a new mortgage during this time:

1 Looking to buy a home soon?

Get pre-approved. This is an important step that allows prospective buyers to search for a home with confidence, understand what they can afford and lock in a mortgage. To get preapproved, contact a broker, call your bank or apply online with a digital mortgage company.

2 Prepare your documents in advance

Whether you’re looking to refinance, switch or apply for a mortgage, you’ll need to have the right documents on hand. Get a head start and organize all your paperwork to speed up the process later on.

3 Shop lenders for the best mortgage

Going from one bank to the next to find the best mortgage isn’t something you can easily do right now. So, one of the best ways you can shop around is to either call a broker or use a digital mortgage company. What’s great about these companies is that they’ll do the shopping for you, so you can find the best mortgage option without having to leave your home.

4 Expect lenders to be tighter

The financial downturn caused by COVID-19 alongside the heavy increase of unemployment has led many lenders to be slightly tougher about the application process. Finding an unbiased mortgage advisor will put you on the right path from the start. They’ll give you a full picture of the mortgage options and lenders available.

5 How to close

If you’re going to go digital with your mortgage, why not bring the rest of the process online? Regardless of what you’re applying for, you’ll need property insurance and a real estate lawyer for new purchases. Providers of these services are also expanding their digital options, enabling you to do everything online from your own home.

Current conditions have underlined the advantages of tech companies and how they’ve changed the marketplace, especially when it comes to navigating the mortgage process.

In the end, it’s important to know that there are solutions available and that you don’t have to worry about social distancing restrictions keeping you from getting the best mortgage for your needs.

Jesse Abrams is Co-Founder at Homewise, a mortgage advisory and brokerage firm based in Toronto. thinkhomewise.com

RELATED READING

CMHC tightens mortgage regulations slightly

 

 

SHARE  

Featured Products


condo_market_banner_600

Condo Market: New Mortgage Rules and the Implications on First Time Buyers

Latest News


Condo Market: New Mortgage Rules and the Implications on First Time Buyers

If you are planning on purchasing property and if you are a first time homebuyer in Canada, a discussion about requirements necessary to financially qualify would be of the utmost significance.

What is the Stress Test?

The stress test is another way of saying what if the bank of Canada hikes interest rates? Will homeowners be able to keep paying their mortgage payments? Prior to the new rules, insured mortgages were already subjected to such tests, but now they apply to uninsured mortgages as well. Even if one puts down 20 per cent they still have to pass the stress test to qualify. This will ultimately cause buyers to save up more money and possibly wait to buy. This also means that more buyers might opt to rent instead of own until they are ready. Lastly, another option is to look for something less expensive on the market.

Renting, Investing, and the Effect on the Market

Let’s break down the possibilities. Since there will be a greater pool of quality tenants who will not have any other option but to rent for the next few years due to their inability to get pre-approved in order to save money, investors will capitalize on this by buying up resale properties and renting them out. I have personally seen an influx of tenants looking to rent. I have also seen bidding wars over the last little while on rentals like never before. This is like the butterfly effect; everything shifts around.

A More Balanced Market? Maybe

The effect of the new rules on first time buyers and qualification will create more supply in certain price categories. However, it will also have unintended consequences for cheaper properties, subsequently creating a higher demand and more competition. Over time, this will lead to lower end price point increase as options become more limited.

My top 6 pros and cons of buying a pre construction condo in today’s market

PROS:

  1. Pre construction should continue to be a great option for buyers who want to secure current market price, allowing time to save for a larger down payment.
  2. Buyers can add more money on closing if they are able to save faster. This means that you can pay down as much as you want before closing to make it easier to qualify on closing, not just the 20 per cent commonly required by builder down payment structure.
  3. Building equity over time, while not having to pay a mortgage payment. (This applies to individuals that do not rent and are living at home).
  4. New building, new condo, means no renovations necessary.
  5. Lower utility/condo fees.
  6. Tarion warranty.

CONS:

  1. Not knowing what new mortgage rules will be in effect by the time the closing comes around.
  2. Renting while waiting to move in. This really takes a bite out of the new condo equity increase, if any, as it balances the books by the time you get your keys.
  3. Not seeing the final product. Having to rely on the floor plan and finishes without seeing them.
  4. Less character and size. Newer condos are getting smaller as price per square foot is increased over time.
  5. Waiting.

So What’s Next?

My opinion is to first seek a pre-approval from a qualified mortgage broker before deciding what direction to take. Depending on your pre-approval, you can decide if you want to wait to buy preconstruction while saving money, or if you are in a good financial position now. Another question will be if the pre-approval amount meets your needs when it comes to what is currently available (resale) on the market for your approved price range. Obviously, different segments of the market, such as price range, area, type or property will have different implications.

Long term, I believe that the real estate market is on the right track over all.

ARIE BUZILO is a real estate broker and an investor specializing in buying and selling properties all over the GTA. He works out of Century 21 Leading Edge Realty.

SHARE  

Featured Products