For most people, buying a home is one of the single largest financial decisions they’ll ever make. Most homes have a cost well into six figures. In fact, CBC reported that the average price of a home sold in April 2023 was $716,000.
It’s rare to have so much money on hand to purchase a new home. That’s what makes mortgages so valuable. A home loan gives you the funds you need to buy a home upfront. It also allows you to pay off the principal and interest over time.
Of course, personal finances and creditworthiness also come into play with mortgages. These factors, among others, influence how large of a mortgage you can qualify for.
How can you set your budget and start house-hunting if you don’t know the limits of a potential mortgage? This is where mortgage pre-approval plays a crucial role. With an idea of the loan you could qualify for, you can focus on homes that fit into your limits.
Let’s take a closer look at what mortgage pre-approval is. Then, we’ll review how to get pre-approved for a mortgage.
What is a Mortgage Pre-Approval?
A mortgage pre-approval is a process that centers on a mortgage lender reviewing your financial position.
Based on a detailed review, the lender will provide an estimate of the maximum loan amount they will provide. The loan provider will also set an interest rate. Importantly, the pre-approval process allows you to lock in that interest rate – at Innovation, it’s 90 days.
This is valuable information that makes house-hunting significantly easier. You can target homes in a specific price range.
It’s important to note that mortgage pre-approval is not an iron-clad guarantee. A lender is not obligated to follow through on pre-approval in certain circumstances. The most common is a significant change in your finances between pre-approval and actually purchasing a home.
However, if you have stable finances, pre-approval for a mortgage is a very useful process.
The Benefits of Getting Pre-Approved for a Mortgage
The mortgage pre-approval process accomplishes a few key goals.
Pre-approval empowers you to compare offers from lenders, the Financial Consumer Agency (FCA) of Canada explains. This process also provides a sense of how much home you could afford by sharing a potential maximum mortgage limit.
Pre-approval offers more granular insight into your finances as a homeowner. This workflow helps you estimate your regular mortgage payments. You can see the maximum amount that could be provided, along with the interest rate of your home loan.
With some specific information in hand, it’s easier to factor the monthly payments of a mortgage into your monthly budget.
With a mortgage pre-approval, it’s easy to demonstrate that you’re committed to finding a new home. That can make finding a real estate agent easier. It can also encourage a seller to seriously consider your offer.
Getting Pre-Approved for a Mortgage: What You Need to Know
How can you get pre-approved for a mortgage loan? It all starts with your lender reviewing key financial documents and information.
Every lender may have somewhat different requirements, even though the process and goals are the same for all mortgage pre-approvals. At Innovation, our mortgage specialists will work with you directly. They’re ready to answer questions, detail the specifics, and help you move through the process.
All you need to do is fill out the mortgage pre-approval form on our mortgage page!
In general, most mortgage lenders want to review a similar set of information when making mortgage pre-approvals. The FCAC points out that there are three main areas covered in pre-approvals:
- Assets: money, property, and other things of value that you own.
- Debt: money you owe to others that you’ll need to pay back, whether now or in the future.
- Income: your salary, returns on investment, and other sources of funds. This helps to demonstrate your continued ability to repay your home loan over time.
Lenders will also need to verify your identity and ensure you’re employed. Additionally, they look for signs that you can pay for the parts of the home purchase not covered by the mortgage. Specifically, those are the down payment and closing costs.
You may have to provide bank statements, pay stubs, and credit card bills. Official documents related to current loans and court-ordered financial obligations (like child support) are also often required.
If you have any questions about pre-approvals, please reach out! Our job is to help you get the home of your dreams.
Start your mortgage pre-approval process today!