5 Reasons Why You Need a Pre-Approval
Getting a mortgage pre-approval is a good first step when you’re starting to get serious about buying a home. It lets you know whether you’ll qualify for a mortgage and how much the bank is willing to lend you. Applying for pre-approval isn’t a commitment to work with a bank, so there aren’t any downsides to applying. There are, however, plenty of good reasons to get one. Once you learn more, you’ll want to gather up your paperwork and head to the nearest bank.
1. Setting Realistic Expectations
Many people overestimate how much they can afford. They assume their credit is good enough to qualify for the low advertised mortgage rates. They use their annual salary rather than their monthly salary to calculate costs. They use a mortgage calculator that doesn’t factor property taxes and mortgage insurance into the monthly payment. Those who do this are often shocked when they apply for a mortgage. They may only qualify for amounts that are tens or hundreds of thousands less than they thought.
When you get a pre-approval, the bank will tell you what your interest rate will be and how much they’ll allow you to take on as a monthly payment. Using these figures, you can shop for a home you can afford.
2. Ironing Out the Kinks
Most Albertans have a straightforward financial situation. They work full-time jobs and earn an annual salary. Those who don’t fit this mould can have a harder time getting a mortgage. If you have a seasonal income that varies greatly from month to month or if you freelance, the bank will want to know you can handle the down periods, so they may look for a longer financial history. If you work overtime or were counting regular bonus payments as part of your annual salary, you may be surprised to find the bank won’t count that income when it makes its calculations. After finding out you have a unique situation, you may need to make some adjustments to make your mortgage more affordable.
3. Fixing Any Problems
Getting pre-approved early also gives you an opportunity to fix any mistakes you might have. For instance, if your credit score is low, you may be able to work hard to bump it up to the next tier before you need your mortgage. If a high debt ratio is lowering the monthly payment the bank says you can afford, you can pay that debt down to get a better deal. You don’t always know these details until you apply for a mortgage.
4. Locking in Current Rates
The federal government plans to increase mortgage rates throughout 2018. Waiting to apply for a mortgage may mean you’re stuck with higher rates. When you apply for pre-approval, it locks in the current mortgage rates for a certain timeframe. If rates go up, you’ll still qualify for the rates you locked in. Fortunately, there’s no risk involved here. If rates go down, you’ll be able to get the lower rates. You’re not locked into high rates.
5. Saving Time
Once you find your dream home, you want to get the process started as quickly as possible. Applying and getting approved for a mortgage takes time. If you’re missing some paperwork, the process takes even longer. With a pre-approval, you get this tedious task out of the way. You already qualify for the mortgage, and your bank already has most of the paperwork. You’ll likely have to submit some current pay stubs, but you won’t have to fill out new forms or track down the necessary financial data. You also won’t have to worry about the financing falling through and having to start over from scratch.
Banks may have different requirements for buyers who want to purchase new construction, so it’s smart to get your pre-approval from one of the builder’s approved lenders. In fact, a good builder will often facilitate a pre-approval for you right in their showhomes. This means they can use their buying power to save you money in the long term, get you a better interest rate and ensure a quicker, smoother process overall.
In short, if you’ve been thinking of purchasing a new home, a mortgage pre-approval is an important first step. Not only will it save you time and, in some cases, money, a pre-approval with Sterling Homes will ensure an easier, low-stress home buying process.