Business and Economy
Why You Should Get Pre-Approved Before You Go House Hunting
There is nothing more discouraging than having spent days, if not months, looking at properties for sale, going to open houses, envisioning the décor or the upgrades you want on a property you fell in love with, only to find out that you cannot get a mortgage for that property. So before you embark on your quest to look for that dream home of yours, you have to make sure that you have ducks in a row.
Let’s review some of the things you need to consider:
1. How much mortgage will you be approved for?
How much mortgage you qualify for is determined by: a) how much is your income; b) how much debt you already carry such as credit card bills, car loans, student loans; c) what is your credit score; d) how much down payment you are going to put; e) how much are the property costs such as property tax, strata fee and heating; f) what do you intend to use the property for. All factored in, your monthly financial obligations, including your housing costs, should generally be around 44% of your gross monthly income.
2. What kind of property should you be considering?
There are different requirements, mortgage products, and interest rates for owner occupied properties as opposed to investment (rental) properties. If you’re planning to live in the property, some factors to consider are: a) how many people are going to live in the property (most stratas would have a limit on the number of occupants in a unit); b) what is the general condition of the property and/or how much do you need to spend to make it livable?; c) is the “mortgage helper” income you are expecting from the property acceptable to the lenders?; d) will you be comfortable in the surrounding neighbourhood?
3. What kind of mortgage products should you get?
What mortgage product you are looking at is a major consideration when making a purchase. For example, if this is just as an equity builder, then you may want to opt for the longest mortgage amortization period so your monthly payment is smaller. If you are planning on keeping the property for just a couple of years, then you may want to go for a variable term to minimize penalties when you break the contract or you may go for a shorter term such as two or three year period. If you are in for the long haul, you might want to go for a short amortization period with the best pay-up options.
4. What mortgage rate can you lock on?
What interest rate you can lock on when you get pre-approved will give you a peace of mind as you look around for your dream home. The rate hold is generally good for 90-120 days. A bonus to this pre-approved rate is if the rate goes down, your mortgage broker can negotiate for you to avail of the lower rate.
It is important for you to remember that pre-approvals are not final. Most lenders do not review the documents during pre-approval; therefore you can’t depend on a pre-approval to go in subject free on a purchase. Lenders and insurers will be making a more thorough review of your documentation to confirm that all documentation is current and property is satisfactory before they will issue the final mortgage commitment.
Purchasing a property may seem daunting especially since there are so many things to consider. Consult with an experienced mortgage professional who can explain, review and offer the different options for you.
