If you’re excited to buy a new home, pausing to complete the mortgage pre-approval process might feel like a drag. It’s much more fun to start looking at homes and imagining your future possibilities. But a pre-approval sets you up for success and helps you plan ahead. In a competitive market, it’s especially important to be well prepared when starting your homebuying journey. Before you start making offers, pre-approval shows that you have the resources to get the home you want. Here’s why it matters.
Know what you can afford and understand the difference between pre-approval vs. pre-qualification.
Pre-qualification generally takes place before pre-approval does and offers an estimate instead of a guaranteed rate. Getting pre-qualified can help you get a sense of what you might be able to afford before you start your home search. Pre-qualification uses self-reported financial data like income, debts, and assets to make an assessment. Pre-qualification is a great step for those early in the homebuying process and can be a useful planning tool.
The mortgage pre-approval process happens when you’re ready to start your search and meet with an agent. Pre-approval uses verifiable data like income, debts, credit scores, or other financial statements to produce a specific offer based on this data. A pre-approval offers lenders security so they can confidently loan you the money you need to buy your home. Most pre-approval offers are good for 60-120 days, so homebuyers often take this step right before they start touring homes.
Pre-approval for homebuying is like securing your ticket before you head to the airport. A pre-approval letter demonstrates that you’re ready to start this new journey, and that you’re prepared to take the next step. A mortgage pre-approval is just as important for you as it is for the potential seller you’ll approach.
A pre-approval offer demonstrates financial readiness and can increase your success rate in a competitive market. Having a verifiable offer letter lets you show your buying power, proves that you’ll be able to secure a loan, and helps reinforce that it’s wise to sell to you. The real estate market in Canada is especially competitive this quarter, so knowing how to prepare for pre-approval will help you compare rates and land the best rate possible.
Pre-approval lets you establish what comes next before you fall in love with a property. It gives you the information you need to build a strong financial plan and to know what filters to apply to your search. It’s similar to the rigor applied when looking for a life partner. For example, if you’re sure you want children, it doesn’t make sense to seriously date someone who doesn’t. Pre-approval lets you establish how much interest you’ll be paying and how big your mortgage should be, so you can look for what fits your budget.
With your pre-approval letter in hand, you can approach a real estate agent with a clear picture of what your financial guidelines are. Now you’ll be able to filter out homes that aren’t within your limits and act fast with an offer when you find the right place. Remember that your rate will only be good for a set number of days and is based on your financial consistency. Use your rate to plan for your financial future, and use online tools to lay out a budget. You can use Houseful to filter results and hone in on a house that’s right for you.
As you’re considering next steps and beginning the pre-approval process, you can also use online tools like a True Home Affordability Calculator to map out your financial plan and establish how much home you can afford. Meet with a financial advisor to explore more tools and to establish a plan that makes sense for your financial goals.
If you’re a first-time homebuyer, avoid common mistakes by preparing thoughtfully for pre-approval.
Use the advanced filters on Houseful to explore options within your price range and compare homes, neighbourhoods, and options.
Find more information on how to buy a home, how to sell your home, and mortgage and finance tips, see our Home Journey How-To’s or sign up at houseful.ca.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.
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