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28 Nov

Mortgage Pre-Approvals: What They Are and Why They’re Important

General

Posted by: Jim Graszat

Often when purchasing a home, purchasers will get a pre-approval on a mortgage.  Typically, these pre-approvals last for 60, 90 or even 120 days.

What is a pre-approval?

A pre-approval involves a mortgage broker collecting all of the documents required to apply for a mortgage, whether with a major bank, or an alternative lender.  The broker would then carefully choose the most appropriate lender for the client, and submit the information to request a mortgage pre-approval.  The lender would analyse the application, and decide whether or not they wish to fund the mortgage.  If it is a mortgage they want to fund, they will send a letter “pre-approving” the mortgage.  This basically means the clients are approved for the mortgage, as long as it closes by the expiry date of the pre-approval.

Why would you do this?

There are many advantages, and no disadvantages, to getting pre-approved.  Here are a few of the most important reasons:

  • The purchaser knows how much large a mortgage they can qualify for. This allows them to have a solid home purchase budget.  It prevents wasting time looking at homes that do not fit into their budget.
  • The purchaser can then make a confident offer to purchase knowing that they will get the financing necessary to make the deal happen.
  • In times of increasing interest rates, a fixed rate pre-approval guarantees the rate offered in the pre-approval for the time period stipulated.

Some important items to remember when working with a pre-approval:

  • The lender has to approve the home purchased. This is most often a formality, but the home has to show enough value to warrant the mortgage amount.
  • The purchase MUST CLOSE before the expiry date of the pre-approval. If closing is delayed, the lender may not honour the pre-approval.  A signed agreement of purchase and sale does not guarantee the rate if the closing is after the expiry date of the pre-approval.

Contact me for more information…

Pre-approval costs you nothing and can bring great peace of mind.  Please contact me if you would like to discuss a mortgage pre-approval or for any other mortgage questions.