Today’s housing market is extremely competitive, and buyers must be pre-approved if they want to improve their chances of an accepted offer.
But how important is being pre-approved for a mortgage? The average home buyer is often unaware of how the process works in being approved for a mortgage, though they may have a general understanding of what kind of figures they are working with. Having ballpark figures is a great first step in determining your deposit amount, mortgage rates, and loans, but it is not the same as having an official pre-approved mortgage set up by a professional.
The journey to home ownership often begins with becoming pre-qualified, and can be easily done over the phone or online. By providing a summary of your employment history, income, assets & liabilities, as well as the approximate down payment amount you have, your mortgage broker should be able to inform you as to how much you are pre-qualified to spend, including what options of interest rates you may qualify for.
A pre-approval is slightly different. A completed mortgage application must be provided to your mortgage broker with the necessary documentation to verify the info provided in the initial stages of your pre-qualification. A pre-approval is always recommended before house hunting, and especially prior to bidding. It has become an essential step to keeping up with other buyers in the market.
If you submit an offer on a home, and you are not pre-approved, you are at a significant disadvantage compared to other buyers because sellers are not likely to even consider no less accept, any conditional offers. If you are not pre-approved, you must include a condition on financing. Sellers in this market know that they will likely receive multiple offers, typically all clean, meaning firm, with no conditions. Therefore, buyers should be pre-approved just to remain a competitive player in this seller’s market.
It is common for buyers, especially first-time buyers, to “lose” multiple homes to other bidders several times before they actually win a bidding war. It is highly recommended that you complete the pre-approval process before even starting your search. This will give you a definite idea of your absolute max budget (or bid price) when the pressure is on from a flooding market of buyers. A mortgage pre-approval will secure a current interest rate for you, though only for a period of a few months. If these interest rates begin to increase, you will still be locked in at the originally agreed upon, lower rate. If for some reason interest rates go down, you will receive the new, lower rate. Regardless, you will be guaranteed the lowest rate, so long as you are actively searching the market for a home.