Pre-Approval

When people ask us the first thing they should do to get on the road to home ownership, we always say "Get pre-approved". Pre-approval is a service offered by most mortgage lenders whereby they accept your application in advance and approve you for a mortgage in principle before you even begin to look for a home. What's more, pre-approval will speed up your mortgage application when the time comes. In fact, shopping for a mortgage should be the first thing you do.

There are several benefits to getting pre-approved.

• First of all, you’ll have more time to shop around and compare mortgage options if you do it in advance of purchasing. Typically, home sellers want you to confirm your financing within two weeks of signing the Sale and Purchase Agreement. A new mortgage application can take a week to work its way through the lender’s system. So if you don't apply for a mortgage until after your offer has been accepted, you may well be rushed and have to accept what the first lender offers you.

• If you get yourself pre-approved for a mortgage you should be protected against interest rate increases while you shop for a home. Lenders will often offer buyers their lowest interest rate for 90 days from the time of application. If rates fall, you enjoy the benefits of the lower rate. If they rise, you get the lower rate that the lender agreed to when they processed your application.

• Seeing your lender in advance will give you a clear picture of what you can afford to buy. It’s not unusual for lenders and buyers to disagree on this point, so it’s best to know exactly how large a mortgage you qualify for. You’ll avoid being disappointed after you’ve found the perfect home only to find out that the bank won’t approve your mortgage. And you won’t waste time and energy looking at homes that are outside your price range. It is also a good idea to discuss your financing with several lending institutions. You may find one willing to lend you more than the others.

• Pre-approval can strengthen your position at the bargaining table. The fewer conditions that you have to place on your offer to purchase, the more willing the seller will likely be to negotiate the price and other terms. A buyer who does not have to make an offer “subject to mortgage approval” is taken much more seriously than one that hasn’t made these arrangements. But bear in mind that pre-approval is not the same thing as having an approved mortgage - lenders advance mortgages against specific properties and will insist on valuing the property you wish to purchase prior to advancing funds.

• In an active real estate market, buyers are often competing to buy good homes. In areas where listing inventory is low, you can bet that the perfect home for you will also be the perfect home for someone else. It’s not the least bit unusual for sellers to receive more than one offer at a time on the best properties. You can seriously improve your chances of winning in these situations by having your financing in place. This tells the seller that you’re serious about purchasing the property. It removes the uncertainty that is present with an offer that is “subject to mortgage approval.” And it’s even possible that a seller will accept a slightly lower offer from someone who has been “pre-approved,” rather than taking a chance with a buyer who hasn’t.