Are you in the market for a new home in Regina? Unless you have a very rich aunt or have recently won the lottery, you’ll likely be looking into getting a mortgage. This means you’ll have to set yourself a budget, come up with the down payment and determine what you can afford for a monthly mortgage payment (including mortgage insurance), taxes and bills.
This is where pre-qualifications and approvals come in. You’ll have a better idea of what you can afford if you speak to your financial advisor, bank or mortgage broker and undergo both processes - however, there is a big difference between the two.
Pre-Qualification: To Start Out
When you meet with the lender, they’ll ask you some basic questions. They’ll want to know of debt you’re carrying, your annual income and expenses, what kind of job you have, and what kinds of assets you may be able to leverage. For example, if you own a vehicle, trailer, boat, etc. and have no debt on these items, all of this can help with this process. For this reason, you’ll want to be as honest as possible and give them all the information you can, to the best of your ability.
The lender will then do a preliminary evaluation to see what you might be able to afford in terms of a mortgage. Once complete, they will give you a general idea of what you will be pre-approved for and which plan makes sense for you.
This, however, is just an estimate, not exact specifics on what you can afford and you’ll still need to factor in the cost of taxes, bills, home insurance and savings. A pre-qualification is not the same as an approval and while it’s a great place to start, it doesn’t verify or hold up with any financial institution.
Pre-Approval: The Real Deal
Once you’re prepared to head out house hunting, you’ll meet again with the lender for your pre-approval. You will need to first sign and complete the mortgage application document, and in some situations pay a pre-approval fee. The lender will also need a piece of government issued photo ID, a confirmation of employment and a letter confirming your salary. They’ll also ask for bank statements and proof of funds necessary to pay closing costs and other fees that a mortgage requires.
Pre-approval means that a lender has stated in writing that you qualify for a mortgage loan based on your current income and credit history. A pre-approval usually specifies a term, interest rate and mortgage amount. A pre-approval is typically valid for a brief period of time and usually has a number of conditions that must be met.
The biggest difference from a pre-qualification at this stage is they’ll check your credit score. While this isn’t a problem if you only seek one approval, each time your credit is checked it will go down slightly. For this reason, you want to avoid shopping around too much for pre-approvals.
The lender will then review all the information and determine if you’re a reasonable risk based on the amount you are trying to borrow. Once you have been officially approved, you are free and clear to put a down payment on your dream home.
Both pre-qualifications and pre-approvals are extremely important to the process of purchasing a home. They will let you know if there's any aspects of your finances that you may have ignored or overlooked when it comes to ownership. It is the largest purchase you will ever make, so it’s best to just take your time and do it right.