When I meet with a new buyer client, one of the very first questions I ask is, “Have you been pre-approved for a mortgage?”
More often than not, they’ve haven’t.
Sure, they’ve done a bit of research on their own; plugged some numbers into an online mortgage calculator, crunched a few more numbers to see what they’re comfortable spending each month...
Don’t get me wrong – this preliminary leg work is great in that it gives you a ballpark idea of what you’re in the market for.
It’s not the same as having an actual pre-approval though.
What Is A Mortgage Pre-Approval?
Generally, you can get pre-qualified for a mortgage over the phone or online.
You provide a breakdown of your employment history, your income, a list of assets and liabilities, and an approximate down payment amount.
Based on this info, your mortgage broker will let you know how much you’re pre-qualified to spend and what sort of interest rate they can offer you.
An actual pre-approval is a bit different.
It takes the process a step further by having you complete a mortgage application and provide your mortgage broker with the necessary documentation to verify the info provided in your pre-qualification (income verification letter from employer, banking info, proof of financial assets and liabilities, source and amount of down payment and deposit, proof of source of funds to cover closing costs, etc.).
I stress to my clients that having an actual pre-approval in place is essential. Here are a few of the key reasons why:
Knowing What You Can Afford
There no sense in shopping for a Jalopy if you can easily afford a Jaguar.
By the same token, why waste your time on a Jaguar if you’re really in the market for a Jeep?
A mortgage pre-approval gives buyers a firm budget to work with.
It helps to streamline the home searching process and allows us to focus specifically on those properties that are within reach.
Locking In An Interest Rate
A mortgage pre-approval locks in a current interest rate for you, for a period of a few months.
If rates start to increase while you’re out shopping for a home, you’re guaranteed the original, lower rate.
If rates actually go down while you’re out shopping, you’ll get the new, lower rate.
It’s a win-win situation.
Giving You The Upper Hand Over Other Buyers
It’s common knowledge that the Toronto real estate market can be highly competitive, especially for buyers.
It helps when I can tell sellers that my buyer clients have been pre-approved.
It gives the sellers some peace-of-mind and reassures them that they’re dealing with serious, qualified purchasers.
And of course being pre-approved helps when there are multiple offers.
Sellers are much more likely to work with an offer that doesn’t have a financing condition in it.
I've actually seen sellers reject the highest priced offer because it had a financing condition in it and accept a lower priced offer because it didn't.
In a real estate market that's as active as Toronto's, any advantage you can give yourself is going to make a difference
A mortgage pre-approval is key in giving you the power to act quickly and confidently when the right property comes along.
Happy hunting!
If you’re thinking of making a move and would like to know how we can help, please contact us for more info.