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WHAT IS A MORTGAGE PRE-APPROVAL?

Have you talked to your bank or your mortgage broker to get pre-approved yet? If you’ve started your home buying process, I’m pretty sure you’ve been asked this question. You know it’s something you need to do, but what exactly is involved in this process?


Let’s go over what a mortgage pre-approval looks like so that you know what to expect and can be better prepared for it.


First off, let’s clarify what a mortgage pre-approval actually is! The purpose of the mortgage pre-approval is to identify approximately the property price range you can afford, how much you can borrow, and determine any issues that may arise in the mortgage application. It’s a planning and strategy process that we go through as if you were actually purchasing a property today.


Here’s what to expect…


The process begins with an initial mortgage consultation for me to get a better understanding of your financial situation. I usually do this either in person, video call, or over the phone. It takes about 20-30 minutes and afterward, we can determine whether or not there’s an opportunity for us to work together.


I’ll be asking you about your employment and down payment information so have those information handy. With the numbers you provide to me, I’ll be able to provide you with approximately how much you can borrow and the price range you should consider for your purchase.


If the numbers make sense and if you’d like to move forward to the next step, I’ll send you an email and request for a list of documents. This part can be quite tedious and time-consuming, but expect to provide a lot of paperwork.


I’ll need documents such as your ID, documents related to your employment such as employment letter, paystubs, and tax returns, bank statements showing the source of your down payment. I’ll also need your consent for me to pull your credit bureau.


Once I have received your documents, I’ll be able to narrow down the range of your mortgage amount, rate, and monthly payment.


The most important part is to identify any roadblocks that may cause an issue on the application down the road. We identify these well in advance so that you’ll have time to fix these issues before we actually submit the formal mortgage application. This will remove any unnecessary stress and you’ll be more confident when you are ready to submit an offer for your new home purchase.


Also, during the pre-approval process, we can determine the rate and term that best suits your financial situation and we can lock in your rate for at least 4 months. This is extremely important if we are anticipating rates to increase in the near future.


Now, many people ask…..so, if I’m pre-approved, does that mean I’m going to be approved for sure and I can make an offer with no subject to financing? The answer is NO! A big fat NO! Make sure you still put in a subject to financing!


The reason is because when it comes to getting a mortgage, there are 2 main parts - the borrowers AND the property. At the pre-approval stage, because you haven’t selected a property yet, the best we can do is to qualify you based on only your income and your credit. We’re assuming that the property is livable and has no current or past issues. For example, properties that used to be a marijuana grow-op, or if there’s a major condo repair such as the building envelop or re-piping, or if the place is simply in an unlivable property condition with major mold issues, or the appraisal value comes in lower than your purchase price….with these types of scenarios, the bank doesn’t care how qualified you are, they may not approve you. That’s why you still need at least 5-7 business days to go through the formal mortgage application for everyone to do their due diligence.


If you have any questions about this, feel free to contact us and we'll answer any questions you may have!

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