The frist step in your home hunting process shouldn't be a call to a realtor, but it should be looking into mortgages and getting preapproved. How can you shop for a property when you don’t know how much money you have to spend on a home. And that’s what a mortgage pre-approval is: the process of determining whether a borrower meets a particular lender’s guidelines for a home loan. To avoid any nasty surprises, it’s best to get pre-approved before doing anything else. Below you will find some helpful tips on the process and what to do along the way.
Bring All Verifiable Information
Be sure to bring in a letter that states your income, pay stubs, banking information that verifies the source for your down payment. Having all this information with you will help provide you with a pre-approval with less conditions attached to it. Here is a more detailed list of information:
- Photo ID
- A record of employment income such as a paystub, T-4 slip or a personal income tax return (if you are self-employed, at least two years of Personal Income Tax Returns and Financial Statements)
- A letter from your employer stating the length of employment and current salary
- The account numbers and locations of your bank accounts and investments
- Proof of assets, such as
- Investments and interest income
- retirement savings accounts
- Other real estate holdings
Proof of liabilites such as
- Existing mortgages
- Credit card balances
- Car loans
- Student loans
- Lines of credit
- Co-signed or guaranteed loans
- Child support
Some lenders will give you written confirmation or a certificate as proof of pre-approval. It’s important to note that when you’ve been pre-approved, the only thing that’s being guaranteed for the 60-120-day period is the interest rate. The only thing that’s locked in is the interest rate. This not only gives you another tool to better estimate monthly costs, but it also protects you against rising interest rates.
Ask to have your banker/broker check your credit history
Not all bankers/brokers will check your credit history at the preapproval stage. However, it could prevent you from getting final mortgage approval. Therefore, if you are unsure, ask.
Build Credit History, especially if you don’t have any
It is best to register for a Registered Retirements Savings Plan (RRSP), especially if you are in the soft stages of buying a home. This will appear on your credit report and help you with applying for a down payment.
Avoid Lavish Purchase
It is important to not start racking up credit card debt before you purchase a home, it will interfere with the amount you qualify for. You should also hesitate from changing jobs within six to eight months of buying a home, as a lender will look at that. However, if the job change is a natural progression or promotion, this will be looked at differently.
Final Mortgage Approval
Once you have mortgage pre-approval you should watch out for anything that may affect your cash flow in the future, such as acquiring new debt or the possibility of being let go from your job. Even changing employers could affect your approval, so it is best to keep your financial picture as stable as possible.