When searching for a home, it makes sense to get a mortgage pre-approval and line up the necessary documents before you dive into your house hunt.
So, what’s a pre-approval? As the name applies, it’s the process before the “formal approval process” that will determine how much money a prospective home-buyer will be eligible to borrow, based on the information they have provided.
With a pre-approval:
- you’ll get a good sense of how much you can afford;
- you’ll be assured of a particular mortgage rate for a set period of time;
- you’ll be in a much better position to negotiate with sellers;
- if any irregularities or surprises arise on your credit bureau, you will be in a much better position to correct them early on in your house hunt.
With a locked-in rate, there is no risk of interest rate increases while you are house hunting. A mortgage advisor may be able to obtain a longer pre-approval rate hold.
On the other hand, a pre-approval is not a rock-solid guarantee of financing. Due diligence on the Lender’s side is always necessary. A pre-approval does not eliminate the need to make sure your offer is conditional upon financing, and you still must consider all closing costs.