Understanding the Pre-Approval for a Mortgage: What is it? Should you do it?

pre approved mortgage in winnipeg

Everyone completes the pre-approval for a mortgage process, so you will know the maximum limit when you find a house you want to buy. In most situations, you will get that money. It is a relief to search for a home without the worry of getting approved lingering. This process shares the maximum amount you qualify for and the interest rate.

Once approved, you can look for homes up to the agreed amount. In the approval process, the lender has taken a preliminary look at your income, expenses, and overall financial situation. If you get pre-approved, it means the lender deemed your information worthy of extending credit for a home loan. When a realtor  puts in an offer for a house for you, they usually add a financing condition. Even though you have already been pre-approved, having this condition is a good idea. In the odd case, if something comes up with financing, you can back out of the deal without losing our deposit.

In most cases, the two conditions on an offer are the mortgage and the home inspection conditions. The home inspection condition allows a potential buyer to have a home inspector go through the home to make sure there are no significant issues with the home. Similar to the financing condition, if there is something important that the buyer finds in the home inspection, they are allowed to back out of the deal without losing their deposit. In a hot market, some buyers will not put in a home inspection condition, hoping the seller will choose their offer. More often than not, if there are two identical offers, one with a home inspection condition and one without, the seller will take the offer with fewer conditions for simplicity.

Pros Of The Pre-Approval Process

  • Identifies if you qualify for a home loan.
  • Identifies the amount of a home loan you likely qualify for.
  • The process is fast and can often be done online rather than in person.
  • It can make it easier to shop for a home within your price range.
  • The rate can be locked in for 90 to 120 days.

Cons Of The Pre-Approval Process

  • Not all lenders offer a pre-approval, and that can limit where you can apply if you want to get pre-approved.
  • It doesn't guarantee approval.
  • You may look at a home outside of your price range based on the pre-approval figures

Is A Pre-Approval A Good Idea?

Getting pre-approved for a mortgage loan is an excellent place to start. Be honest with your information, including income and expenses. Otherwise, the results can be misleading. This can prevent you from getting a mortgage loan or from getting a loan for the amount you need to purchase the home of your dreams.
Your information must be more transparent for pre-approval if you have unique circumstances. This can make it harder to know if you will qualify or how much you will qualify for. In such a scenario, speaking with a lender about your situation is best. They can tell you if they feel a pre-approval is a good fit. They can also share with you the type of loan they feel you would best qualify for. Based on your circumstances, you may have to provide additional documentation. Find out what those items will be so you can work on gathering them. The more you have ready to go when you are prepared to proceed with the actual loan application, the smoother the process will be.

A good mortgage broker will help you find out what you can qualify for and help find you the lowest rate. The great thing about a mortgage broker is it doesn't cost you anything; the lender pays the broker.