Should I get pre-approved for my mortgage?

Should I get pre-approved for my mortgage?

Short answer? YES. If you’re looking with the intention of buying in the near future, it’s a smart move.

A mortgage pre-approval is when a lender looks over your finances and calculates the max amount they’ll lend you and the interest rate they’ll charge. They lock in that approval for up to 120 days, so you have time to search. It’s a very good thing to have in your arsenal when you’re looking to buy for two reasons:

  1. It helps you set your budget. Knowing how much money you have to work with will narrow down your search, and help you avoid the disappointment of falling in love with a condo you can’t afford.

  2. It shows you’re a serious buyer. In a hot market where bidding wars are the norm, conditional offers get the side-eye and things move really fast: already being approved for a mortgage makes you a more desirable buyer. If you make an offer that’s conditional on getting approved by your bank, the sellers will probably move on to buyers that already have their ducks in a row.

The pre-approval process
You fill out a mortgage application, provide your tax records for the last couple of years, and show verification of income. The lender will look at all your documents, check your credit scores – and then decide what size loan and what interest rate you can get. Get more details here.

But a pre-approval isn’t a guarantee – when the lender looks at your credit, your income or your debt again closer to closing day and something has changed, they could say no, or only approve you for a lower amount. And if their loan requirements change (e.g. they require a higher credit score), that could impact things, too.

Your best bet is to keep your finances as close as possible to what the lender pre-approved. That means no big purchases on your credit card, no additional loans, no changing jobs. Keeping your budget below the max amount you’ve been approved for can also help.

Ask all the questions
When you meet with your lender for the pre-approval, ask them tons of questions. Find out how long they guarantee the pre-approved rate, if the pre-approval can be extended, and if the guaranteed rate will go down if interest rates drop. Getting all the info will help set you up for success – and land that amazing condo you’ve been dreaming about.

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