Unimor Capital Corporation

Tag: Pre-approved

  • What Does Mortgage Pre-Approval Mean?

    What Does Mortgage Pre-Approval Mean?

    There’s a common misconception among some homebuyers that if you’ve got a pre-approval, your mortgage is basically guaranteed. This usually isn’t the case. Having a pre-approval doesn’t guarantee the lender will fund your mortgage. Below, let’s explain what a mortgage pre-approval is and whether it’s worth getting one.

    What is a mortgage pre-approval?
    A mortgage pre-approval is a conditional approval granted by a lender based on a preliminary review of your financial situation and creditworthiness. Conditional approval means that they are approving you based on some conditions/assumptions that will have to be confirmed later on.

    While this preliminary approval usually requires a credit check, information about your debts and income are based on details you provide to your broker, which are then shared with the lender. A pre-approval is often based on that information alone, without the lender verifying the documents or knowing which property you’re going to buy.

    For these reasons, a pre-approval isn’t binding until a lender has a chance to do its own due diligence and fully verify your financial information. It will also have to review details of the property you plan to purchase, which can include requiring an appraisal and/or inspection. A mortgage pre-approval is sometimes called mortgage pre-qualification. Each lender can have its own definitions for what it means and what is needed to get one.

    Where do I get a mortgage pre-approval?
    You can get preapproved by different kinds of mortgage lenders and mortgage brokers. A mortgage broker can help you quickly compare and choose from many of the following types of mortgage lenders:

    • Big Banks
    • Credit Unions
    • Mortgage Companies
    • Trust Companies
    • Insurance Companies

    Each lender will have its own mortgage offerings that you need to compare. Aside from the interest rate, ask your mortgage broker about the fees, penalties, and other costs. Ask about mortgage prepayment options and find out about the kind of customer service that they offer. For example, does your mortgage company provide online access to your account? Is there an app where you can track your balance and payments? Is it easy to contact them to make changes or inquiries?

    What do I need to get a pre-approval?
    Your mortgage broker can give you specific details on the documents needed. Each lender will have different expectations, and some documents might not be needed right away.

    Your mortgage broker will need to understand:

    • Your income
    • Your debts
    • Your assets
    • You may be asked to provide documents for your pre-approval, including things like:
      • ID (driver’s license, passport, etc.)
      • Proof of employment (such as a recent pay stub)
      • Proof of your down payment
      • Proof that you can pay for closing costs (usually 1.5% of the purchase price)
      • Information about your other properties if you own any
      • Separation agreement, child support information, student loans, and car loan information

    What Happens After I Get Pre-approved?
    Once you are preapproved, you should make sure you understand the terms of the pre-approval. You will need to know:

    • How long the pre-approval is valid (usually 60-120 days)?
    • What happens if rates go down? Will your rate drop also?
    • Anything else you don’t understand about the lender or mortgage.

    Also, once you have a pre-approval, you should avoid the following:

    • Don’t change jobs before you move, even if the new job has a higher pay.
    • Don’t apply for other credit, including store credit for furniture, vehicle loans, credit cards, etc.
    • Don’t make any major purchases without checking with your mortgage broker first.

    Pros & Cons of a Pre-Approval

    The Pros:

    • The process is generally quick, and a lender can let you know roughly how much you qualify for based on the preliminary financial information you provide.
    • Peace of mind while house-hunting. Having a pre-approval can give you greater confidence when shopping for your house, as you can set an appropriate budget based on the mortgage you qualify for.

    The Cons:

    • Not all lenders offer pre-approvals, which could limit rate options somewhat for those wanting a pre-approval.
    • A pre-approval usually isn’t a guaranteed approval, so it is still wise to have a financing condition included in your offer.

    Should you get a pre-approval?
    Yes, you should always plan ahead and know what you can afford. Pre-approvals are often a good starting point when shopping for a mortgage.

     

  • What Does ‘Pre-Approval’ Mean?

    What Does ‘Pre-Approval’ Mean?

    Getting pre-approved by a lender makes it easier for buyers to find the home they want within their price range. However, it does not guarantee you’ll get the mortgage. It is simply a certificate saying that through a quick calculation of your finances, the lender has determined what you can afford.

    During the pre-approval, the lender will also fix the interest rate, which is usually good for between 60 and 90 days. If a better rate promotion occurs during the buyer’s fixed period, the buyer is usually eligible for that as well. It is likely the pre-approval will lead to a mortgage, but there have been situations when this has not been the case. The best way for buyers to ensure success is to understand what the lenders look for and to be prepared. Another way is for buyers to work with their mortgage broker, who can flag any potential challenges.

    A lender will determine a buyer’s debt load by calculating the Gross Debt Service (GDS) Ratio and Total Debt Service (TDS) Ratio. The GDS Ratio is the proposed housing costs, including mortgage payments, taxes, heating costs and 50% of condo fees, if applicable, and shouldn’t be more than 32% of the buyer’s gross monthly income. TDS calculations take into account all the buyer’s other debt obligations and shouldn’t be higher than 40%.

    Once a buyer has made a conditional offer on a home, the lender will gather all the documentation required to approve the mortgage, including a credit report. Other items a lender will need are a letter from an employer confirming the buyer’s salary, information about other sources of income, bank accounts, loans and other debts, proof of financial assets, sources of the down payment and deposit, and proof that the buyer has the funds for closing costs.

    Problems can crop up during the mortgage approval process. For example, the buyer’s credit score may be too low, the buyer might not have the right source for the deposit funds or the closing costs may not have been deposited in an account. The buyer’s GDS and TDS ratios might also be too high.