When it comes to buying a home, getting pre-approved for a mortgage is a very important step.
Not only does it help you understand exactly how much you can afford to spend ona home, but it often allows you to lock in an interest rate for a period of time which could potentially save you thousands of dollars for years to come.
Here are 4 simple steps to a mortgage pre-approval:
Talk to a mortgage specialist. Whether it’s your bank mortgage specialist or an independent mortgage broker — talk to someone with expertise who can help you compare rates and terms as there are hundreds of options to choose from. Note: A 2014 report by the Canadian Association of Accredited Mortgage Professionals suggests that more home buyers are choosing fixed-rate mortgages for their purchases (74%, compared to 20% who had a variable or adjustable rate, and 6% who had a combination mortgage rate) 2.
Complete an application to find out how much you qualify for. There are many factors that go into determining your eligibility for a mortgage. Two of the primary practices are calculating your GDS (Gross Debt Service) and TDS (Total Debt Service) ratios. These factors determine how much you can comfortably afford to spend based on your down payment, income and other financial obligations.
Gather your financial information to finalize pre-approval. Your bank or mortgage professional will require documentation to support your application such as income and down payment verification to finalize the pre-approval process.
Get a copy of your pre-approval. This is a powerful negotiating tool. It’s extremely frustrating for sellers to lose a sale because of financing. A pre-approved buyer means sellers have one less thing to worry about. Even though many offers are conditional on financing, the seller of your dream home will see you as a more attractive buyer when they know you are pre-approved.
2 “Canadian Housing Observer 2014,” Canada Mortgage and Housing Corporation, last modified April 2, 2015, https://www03.cmhc-schl.gc.ca/catalog/productDetail.cfm?lang=en&cat=122&itm=27&fr=1436556988656.