The Pre-Approved Mortgage

What is a pre-approved mortgage? How do I get it? Why do I need it?

 

A pre-approved mortgage is when a lender confirms your ability to qualify for a mortgage at a specific loan amount (usually for a particular period, such as 90 days). The lender will check your credit, verify your financial and employment information and documentation.  All of your financial obligations will play a significant role in determining your debt servicing. Car loans, credit cards, lines of credit, child support, student loans, etc will play a significant factor in getting a pre-approval for financing a property.

How to apply for a pre-approved mortgage.

It is best to first inquire at the financial institution that you are already dealing with. They know you and you already have a business relationship with them. You may already have a financial adviser that you know and trust  who can find the best mortgage rates and options for you.

Most people are under the misapprehension that a pre-approved mortgage means they are guaranteed financing. Nope. That’s wrong!

Just because you’re pre-approved doesn’t mean you’re guaranteed financing. The lender can still say “no” if the home you’ve chosen doesn’t meet their lending criteria. In the event of an offer, your Realtor® will still advise you to make your offer conditional on approved financing.

What homes may not meet a lender’s criteria for a pre-approved mortgage? 

In Ontario, Canada, if your deposit is less than 20% of the purchase price, your mortgage is considered a “high ratio” mortgage and must be insured.  With most financial institutions this insurance is provided by Genworth or CMHC. These insurance companies have very strict parameters as to the conditions and types of mortgages that they will insure.

Some conditions that may cause issues include:

  • knob and tube wiring
  • galvanized plumbing
  • kitec plumbing
  • vermiculite insulation (may contain asbestos)
  • commercial zoning or in a commercially zoned neighbourhood
  • close vicinity to an industrial site, feed mill, etc
  • water damage
  • bank appraisal value is too low
  • contaminated soil
  • marijuana grow-up
  • location of crime scene, death, murder
  • dry rot
  • insect or rodent infestation
  • fire damage
  • self employment

Why should you get a pre-approved mortgage?

Realtors who list properties have their client’s best interest at heart.  It is important to the listing agent and seller to have only pre-qualified buyers viewing their properties. In most cases the subject property is someone’s personal home. Is it fair for the owners to quick tidy up, change family schedules, and temporarily vacate the home to allow access to their home for someone who cannot afford it? Of course not!

If you are pre-approved, you and your Realtor® will know exactly what homes are affordable and within your budget.

If you choose to sign a Buyer’s Representation with a Realtor®, (which I strongly advise and will explain in another post), your Realtor® will advise you to first get a pre-approved mortgage before suggesting suitable properties to view.

Once you have been pre-approved to finance a home and if there were no issues with your credit, income, etc……consider shopping around for best mortgage rates.  The slightest reduction in a mortgage rate can save you thousands of dollars in the long run! If you do find a better rate, give your own financial institution an opportunity to match it!

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