If you’re wondering what the answer to that question is, it’s simple, yes! A pre-approval is even more important as a first time buyer, not only will it help you understand mortgage financing it will also make you more confident when you go and write an offer on a house.
What is a pre-approval?
Quite simply a pre-approval looks at your income, assets, liabilities, and credit score and approves you for a maximum mortgage amount. It looks at your current situation and determines if you would be a good borrower by assessing your ability to repay the mortgage loan. There are strict rules in Canada about mortgage lending which are based on your personal debt ratios that are calculated as a percentage of your debt payments vs gross monthly income. Therefore, even if you have a good job with a large income it does not guarantee you will get a mortgage loan if you are also carrying a large debt load. Speaking with a mortgage broker will help you understand your unique situation.
Why a pre-approval can help
If you can say that you’ve been pre-approved when writing an offer it gives you a better advantage over someone that has not been pre-approved. This lets the seller know that you are a serious buyer who is able to secure financing on the property (which is important unless you can pay cash).
Also by getting a pre-approval you will have started your mortgage application and your mortgage agent will be able to request a lot of the required documentation ahead of time. Once you have an accepted offer the mortgage agent only has to get information on the property before submitting it for a full approval. This can save a considerable amount of time and can ensure your mortgage approval goes quickly and smoothly.
What a Pre-Approval Isn’t
One thing you have to remember about a pre-approval is that it is not a full approval. There are two things that the lender considers when approving a mortgage loan. The first is the borrower and their ability to repay the loan. The second is the property; in the event that a home owner defaults on the mortgage loan, the lender wants to ensure that they have a marketable property that they are able to resell. When getting a pre-approval you haven’t found a home yet so the process only assess the borrower. Once you have an accepted offer on a home it is then submitted to the lender for full approval with both the borrower’s details and the property details. This is why it is important to include a financing condition in your offer in case the lender does not approve the property or another unforeseen aspect of the application.
Getting pre-approved for a mortgage is the smartest way to approach securing a mortgage on a new home. It will give you time to meet with a mortgage agent that can answer any of your questions regarding mortgage financing. It will also put you in a stronger position when putting an offer in on a home and can make you more confident that the mortgage approval stage will go smoothly.