The importance of having a solid pre-approval
It is common knowledge that you should never place an offer on a property if you haven’t been pre-approved. In fact, if you are working with a good realtor, one of the first questions they may ask you is if you have been pre-approved. Not all pre-approvals are equal and placing an offer on a property without a full pre-approval is outright dangerous.
A full pre-approval will answer some of the following questions.
- What is the maximum price I may offer on a property?
- How much of a down payment will I need?
- What will my monthly payments be?
- What will my interest rate be?
- What will I need to do to eventually purchase a home?
There is a lot of misinformation about pre-approvals and a lot of this stems from advertisements on TV and on the internet. Also, some Mortgage Brokers and bank representatives irresponsibly give you pre-approval amounts without much effort or due diligence.
What is NOT a full pre-approval?
- All the advertisements from our major banks which offer “60 second pre-approvals”. This is not a pre-approval and is not specific to your actual financial situation.
- You’re at a bank getting a new credit card and casually ask the representative how much you would qualify for, and they simply give you a new number.
- Submitting an online application to a bank or broker and they give you amounts without reviewing any documentation.
A full pre-approval with us includes the following.
- Phone call with a mortgage professional who assesses your financial situation and goals.
- Full mortgage application followed by a credit check and review.
- Review of all your supporting documentation. Income, down payment & other docs.
- Pre-approval sent to you within one business day of uploading your documents.
- A phone review of the pre-approval to go over the numbers that were sent in detail.
- Found a property that you want to make an offer on? We review the actual property to ensure that you can confidently make an offer.
Purchasing a home is a serious transaction that you should not take lightly, and your mortgage professional should not take lightly either. We have heard countless horror stories from people who purchased homes to only find out that their pre-approval was not properly completed. These people are then in a very stressful position and are often facing severe financial penalties and liability. Not only does a full pre-approval save you from potential financial hardship, it also makes for a pleasant experience once you do find a property. The extra effort we put into our pre-approvals means that you have a smooth closing and can focus on moving into your new home.
Not a first-time homebuyer and want to buy with 5% down?
I had a realtor partner ask about down payment options for First-time buyers vs buyers who already have a property and thought I'd create this post. This is an excellent question and there is a lot of confusion when it comes to down payment.
There is a common myth that you need 20% down if you currently own a home or have purchased a home in the past.
You can put as little as 5% down on a property if your intentions are to live in it. You MUST put 20% down if your intentions are to rent out the property that you are looking to purchase.
Example: You purchased a condo, lived in it, and now want to buy a house and rent your condo out. This is completely OK, and you can use as little as 5% down. You are upsizing and need more space; the lenders are assured that you will be occupying this new house.
If you currently live in a house that you own and are planning to rent it out and buy a condo to live in, you must have a good reason as to why you are downsizing. The lenders/insurers want to ensure that you will not be renting out the condo you are looking to purchase.
Example: You live in a house that you own but you need to move to another part of the city or country for work, education or to perhaps be closer to your family. You can put as little as 5% down because there is a good explanation.
If you currently live in a house that you own and are looking to buy a condo up the street with 5% down, the lenders/insurers will immediately think you are trying to use it as an investment property and will decline your deal. Again, if your intentions are to live in the property that you are purchasing, you can put as little as 5% down, no matter how many homes you have owned or own.
There are other instances where you can put as little as 5% down such as second homes that will not be rented out.
Example: Your children will be living there as they attend university.
Why is it important to speak to a Mortgage Broker? There are many factors when it comes to down payment so always speak to a Mortgage Broker. Also, every lender views rental income differently so having access to 65 lenders will ensure that you receive the highest purchasing power that is available.