Mortgage Pre-Approval and Approval

Unless you have the needed cash to buy a home, you will have to go for a mortgage if you intend to buy a home. Of course, in the light of the latest events, like the interest rate hike and the new stress test, many potential homebuyers postpone their visit to the lender’s office and skip getting a pre-approval as they rather deal with that later.  It may not be mandatory to get a mortgage pre-approval, but it certainly makes things a lot easier for homebuyers. Here is what you need to know as a first-time homebuyer about mortgage pre-approvals and approvals.

The Benefits of Getting Pre-Approved
A pre-approval means that a lender has reviewed your credit report and supporting documents (employment letter, income, credit card statement, etc.), based on which they provide you with a price range you can afford. In addition, they will let you know what the estimated closing costs are and what they include. The lender should also give you a breakdown on the mortgage payments on a monthly basis. A pre-approval will save you valuable time as you’ll only focus on the price range you can afford and not waste your time with unaffordable homes. A good thing is that you can lock in the pre-approved interest rate for the following 120 days which gives you a huge advantage. If the interest rate goes up during that period, you will get a mortgage at the pre-approved lower interest rate if you find a home within the given timeframe. On the other hand, if the interest rate should go down, you will be granted the favorable rate.

How To Make The Most Out Of Your Mortgage?
Ever since the new stress tests were introduced, Canadian first-time homebuyers have become more nervous, but despite tougher mortgage procedures (that require qualifying at a 2% higher rate than the contracted one), there are still ways to qualify for a mortgage or get some of the money back through different programs.  The minimum down payment is still 5%, but there is a number of other tools available when buying a home, like tapping into your Registered Retirement Savings Plan (RRSP) and get up to $25,000 for the down payment. This is a great option, but beware, you will have to return the borrowed amount in the next 15 years. Gifted Funds is also useful and it basically allows your family/friends to give you the money for the down payment. First-time homebuyers can also apply for up to a 3% cashback on closing. The cashback comes from the total mortgage amount and can reach thousands of dollars which can come in handy to buy new things for the home, cover the moving costs, etc.

Do your due diligence on other mortgage programs and find out which one is your best fit. In today’s market, you should use any help you can get that brings you closer to your dream of owning a home.  To find out about other costs that come with a mortgage, click here or call me 416-491-4002.