Now that it’s January, many people are starting to think about purchasing a home. Whether you buy this month, next month, or a few months down the road, there’s a few things you may want to consider before you start your home search. We sat down recently with John Hudey, an RBC mortgage specialist, to get the inside story on mortgage preapprovals.
Being pre-approved is commonly heard in real estate, but what’s the big deal? And what does it mean? Being pre-approved for a mortgage means that the bank or lender that you’re working with has checked out your credit history, along with looking at your income and the size of your down payment. Because of these things, your lender has said that you may be a good fit for a mortgage. While this may sound the same as pre-qualification, make sure not to get the two mixed up. Pre-approval takes it a step farther, since your lender has checked out actual documentation regarding your finances, rather than a brief screening. Though being pre-approved is not providing a guaranteed mortgage, it does help you in a number of ways.
The pre-approval process usually comes with an approximate amount for how much of a mortgage is affordable, given your current circumstances. This gives you a great starting point for what homes you should be looking at, as it narrows down your purchase point. It’s one of the most important reasons to get pre-approved before you start shopping, since it saves you time while preventing you from falling in love with a property out of your price range. Being pre-approved also helps you plan your finances, as it will give you an estimate of what your mortgage payments may look like.
Sometimes pre-approval can also give you better chances when submitting an offer to a seller. It helps to show them that you are serious about buying, as well as having the means to follow through on the offer you put in. In the event of multiple offers, pre-approved buyers have the advantage compared to buyers with no pre-approval. Given the choice between a buyer with no obvious way to follow through on an offer and a buyer who’s had a lender look into their finances, most sellers will choose the latter.
So what do you need to do to get pre-approved? After you’ve made an appointment with a mortgage specialist, you’ll need to bring your tax returns for the two most recent years, as well as income verification. Bring your most recent paystubs, and documentation verifying the amount of your down payment too. If you’re self employed, you may need to bring your full 2-year tax history and you may be asked to provide your corporate tax returns as well.
Going through the pre-approval process can help you speed up your home buying journey. You can show buyers you’re ready to make the purchase and it helps you narrow down what houses you can afford. Are you ready to make a purchase? Just finished your pre-approval process? We’d love to help you find your perfect home. Call us today!