Should I get pre-approved for my mortgage?

Should I get pre-approved for my mortgage?

Short answer? YES. If you’re doing more than just window shopping, it’s a smart move that ensures you know how much you can afford. And when it’s time to make an offer on a property you want to buy, already being approved enables you to move fast and not have to worry about financing conditions.

First off, what is a mortgage pre-approval?

When you’re thinking about buying a home, it’s how you determine how much you can actually borrow. Basically, a lender or mortgage broker looks over your finances and calculates the max amount they’ll lend you and the interest rate they’ll charge. Then they lock in that approval for up to 120 days, so you have time to search without worrying about the rates changing.

A pre-approval is a very good thing to have in your buying arsenal, and here’s why:

  1. It tells you exactly how much you have to work with. Having a realistic amount in mind narrows down your search, and helps you avoid the disappointment of falling in love with a place you can’t afford.

  2. It shows you’re serious. Already being approved for a mortgage makes you a more desirable buyer.

  3. It enables you to move fast. If you aren’t pre-approved, any offer you make will have to be conditional on your bank saying yes to that amount, which delays things. If you end up in a bidding war, sellers won’t wait for you to get approved, especially if there's a buyer in the wings who has their financing in place.

The pre-approval process

Here’s how it works: 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 docs, check your credit scores – and then decide what size loan and what interest rate they will offer.

Read more: Mortgages 101

But one thing to note: a pre-approval isn’t a guarantee. If the lender looks at your credit, your income or your debt again closer to closing day and something has changed (like you’ve moved to a new job, for example, or started your own business), 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.

Read more: How much can I afford?

Ask lots of questions

When you meet with your lender for the pre-approval, find out how long the pre-approved rate is locked in, if it can be extended, and if that guaranteed rate will go down if interest rates drop. Getting all the info you need will set you up for success – and help you land that property you’ve been dreaming about.

Need more info about buying your first home?

Check out our First-time Buyers’ Hub to get the scoop on everything from starting your search to what to expect on closing day – and everything in between!

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