Getting a Pre-Approval - 5 Great Advantages of Being Prepared
When getting ready to buy a property, many home buyers and new investors underestimate the power of getting a pre-approval.
After all, in the age of online mortgage calculators, many people believe they already know exactly how much they can afford and how much they expect to pay. However, the downside of those calculators is the fact they only consider a very narrow selection of mortgage products and are often tied to a single lender.
Additionally, these rough calculations do not carry any real weight once it comes time to apply for a real mortgage, especially if you do not apply right away. The real estate market is constantly shifting and by waiting without any confirmed estimates or expectations beforehand, those approximations you received prior will often not match the real rates and value provided to you from your actual mortgage.
Fortunately, that is why pre-approvals exist. By getting a pre-approval from an experienced lender you are setting yourself up for a successful purchase in a variety of ways. So, whether you are looking to buy your next income property or are planning on buying the home of your dreams, here are five reasons a pre-approval can help you get ahead.
Before we dive in, if you would like to start the pre-approval process today, we can walk you through the process of applying with a free strategy call at the link below.
Protection From Rising Interest Rates
Interest rates and constantly changing, and not always in a way that benefits you as a buyer. However, by getting a mortgage pre-approval you have the opportunity to get ahead of rising interest rates, even if you do not plan on buying straight away.
With many lenders, you can get a pre-approval for a loan at a specified interest rate. Yet, even if you do not immediately go and apply for a mortgage at that rate, these lenders will allow you to hold that rate for approximately 90 days on average.
This is especially useful if you are expecting a rate hike in the near future, but still need a couple months to get ready to begin house-hunting.
For example, if you get pre-approved for a 5-year fixed rate mortgage at a rate of 2.05% on a loan of $450,000 with a 25-year amortization period and during your pre-approval period the rate rises to 2.35%, you are going to save a total of approximately $19,800 over the entire lifespan of your loan.
Understand Your Budget
Another key advantage of getting a pre-approval is the ability to know exactly how much you can afford to bid on a home. Instead of looking at your down payment and estimating the maximum purchase price of your next property, you will have a solid estimate of your highest possible bid. This is especially useful because you may get approved at a different loan-to-value (LTV) ratio than you may have expected.
For example, you may estimate with a down payment of $80,000 you can only afford a house valued at $400,000 because you are anticipating to pay a 20 per cent down payment. However, once you speak to a lender and get pre-approved you may find out they have a mortgage product that you can qualify for at 85 per cent LTV (meaning you would only be paying 15 per cent down). This means you would be able to afford a home worth approximately $530,000 instead.
Plan Your Mortgage Payments
By getting pre-approved you are capable of planning your mortgage payments ahead of time. This is excellent for people who like to keep a well-structured budget, or new homebuyers who do not want to accidentally default on their mortgage because they were not prepared to make the monthly payments consistently.
Your pre-approval would give you the ability to know what you can expect to pay each month on house-related expenses and compare that to your existing budget. This can often be an effective way to relieve stress from prospective buyers who are unsure if they would be able to cover their mortgage payments. Alternatively, it can also serve as an indicator to would-be buyers who cannot afford their payments yet that it may not be time ideal time to enter the market.
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Simplified Property Search
By giving you a clear budget and the reassurance that you can afford your monthly payments, a pre-approval is able to quickly simplify your property search.
For example, if you know you are pre-approved for a maximum loan of $350,000, you are not going to bother looking at properties listed higher than that because you know they are outside of your price range. Instead, you will be able to dedicate all of your time and effort viewing properties you have a reasonable chance of getting an approved offer on.
Increased Buyer Credibility
Finally, by getting pre-approved for your mortgage, you are increasing your overall credibility as a future homebuyer. With your pre-approval locked in, you are essentially sending a message to any property owners, realtors, or other stakeholders in the transaction that you are serious about buying a property.
This can also assist you when it comes to negotiations. If you are bidding on a property with multiple offers and you are the only one with a pre-approval, you will typically appear as the one with the highest likelihood of following through on the deal. This further increases your odds of having your offer accepted.
Get Pre-Approved
When you are looking to get a pre-approval, it is important to use a broker that will be able to take your finances to the highest number of qualified lenders as possible, this way you have the highest probability of getting approved by a lender who can offer the best available rate for your specific circumstances.
That is why here at LendCity, we work a variety of different lenders in order to help you get the pre-approval and overall mortgage experience best suited to you and your lifestyle. So, if you are ready to get started today or would simply like some more information, feel free to give us a call at 519-960-0370 or visit us online at LendCity.ca Alternatively, click the link below for a free strategy call with our team at LendCity today.