“Lets start at the very beginning, a very good place to start- when you read you begin with ABC” when you shop for a home you start…
With a pre-approval!
Julie Andrews sang it best- because to begin your home ownership dream- you need to start at the beginning and getting all your ducks in line is crucial to the success of your financing.
There can be an overconfidence in a pre-approval, so its important to understand what it is AND what it isn’t.
Pre-approvals are not a guaranteed approval- they are also non binding. Ultimately it is a pre-screening, over 4 of the 5 C’ of credit. The 5th C is collateral which is the property itself; there in lies the distinguishing difference as an approval includes scrutinizing the property. Consider it more like a review or examination of how your application will present to a lender, and with it will become clarity on the strength and weakness within.
It is helpful because:
- It clarifies the budget you have to work within, estimates a monthly payment and goes over some of the important details of the process.
- It requires you to gather your documents that you will need for financing and allows for a complete review income, down payment, employment type- history, debt servicing ratios-essentially 4 of the 5 C’ of credit. Ultimately you are getting all your ducks in a row to make sure that if there an any obstacles that may challenge an approval- you can deal with them ahead of time. Getting mortgage financing is an exciting but also stressful time, however if you have all your documents, a solid review by a mortgage professional and a great plan in place- it can make the process smoother, and more enjoyable!
- Sometimes it can be used to put a rate hold in place while you are shopping. A rate hold will secure a rate (often a bit higher to compensate for changes in the market place) for up to 90-120 days while you are shopping. If rates go higher than your locked in rate- you get your guaranteed rate. If rates have dropped- you get the lower. Rates can change daily! In fact a rate is not set until a file is considered “live” (termed this way to refer an application has been sent in to the lender) and the lender confirms the rate. During a purchase, an application becomes ‘live” once there is an accepted offer and the paperwork has been received by your broker.
Before you go out shopping- be sure to give us a call. We love setting up our clients with success and we can’t wait to work with you!