Here at The Outlier Model, Brian and I recently got pre-approved for another mortgage. Getting pre-approval is actually a really good idea of you’re considering a home purchase because it really forces you to consider what is within your budget. After all, you wouldn’t want to fall in love with your dream home, only to have the banks refuse to give you a mortgage, right? When you get pre-approved, it is a way for banks to say, “Yes, we WILL give you a mortgage for this maximum purchase price, provided you give us a down-payment of X dollars.”
It’s a pretty simple process, but we put it off for a while even though we knew we’d need to get one. I have great aversion to paperwork. But you don’t need to emulate my poor time management skills!
Do your own research. How much can you actually afford? If you currently pay $1000 in rent, you certainly are not likely to magically afford a $1500 monthly mortgage! As a rough estimate:
But don’t think that that’s the end of it. You need to factor in strata fees and neighbourhood association fees (if applicable), the costs of hot water, the cost of property tax and the cost of insurance and other bills. That’s likely to add several hundred dollars to your monthly cost – can you still afford it? If not, then you need to lower your maximum purchase price.
Check your credit. Is your credit currently good? How high is your credit score? While if may not seem immediately important, your credit score has an effect on the interest rate that your bank gives you and the total amount that they are willing to lend you. For example, my bank was willing to lower my line of credit interest rate by 1%, simply because my credit score was good. If your credit is poor, it may be worthwhile to spend another year building up your credit.
Finally, contact different lenders. And yes, I do mean lenders in the plural. There is no guarantee that your regular bank will give you their best rate or maximum mortgage amount. It’s best to get several quotes at once so that you can compare mortgage rates and offers. You’ll need to provide proof of income (typically two recent pay stubs) and information regarding your assets, your debts, and the down payment that you intend to put down.
When Brian and I bought our first condo, we did not compare nearly as many lenders as we should have. As a result, we ended up refinancing and switching to a different back early on. (It was worth it!)
All in all, it only took our mortgage guy one week to assemble all the paperwork and get an answer back to me. Not bad!
Are you considering buying? What has been your experience getting a pre-approval?