Hunting for a new home is an exciting experience. However, it can be tainted with frustrations if one doesn’t understand the requirements, documentation and the terms involved in the process. Mortgage pre-approval is one among the “must have” documents that a homebuyer should consider getting beforehand, to facilitate a smooth home buying experience. This applies both to A type mortgages and also private mortgage lenders in Ontario.
So what exactly is a mortgage pre-approval? This is a documented proof to the seller that the buyer is indeed a serious and potential buyer. Through the letter, the lender confirms that the buyer has undergone evaluation with regard to their creditworthiness, financial history, income sources, employment stability, and other pertinent information that warrants them a loan of up to a certain amount.
As a home shopper, this letter is the seal of approval assuring you that you’ll be first to be considered in the deal; without it, you risk losing the house to another buyer.
Is Pre-approval the Same as Pre-Qualification?
These are different terms although many folks use them interchangeably. Pre-qualification means you have consulted with a potential lender. And based on some shallow information, they assessed your financial situation and generated an estimate of the amount of mortgage loan you might be given. A home seller cannot trust a pre-qualification estimate because it is not based on facts.
On the other hand, a pre-approval letter means the intending buyer has been subjected to complete scrutiny to measure their financial strength and have had their debt-to-income ratio (DTI) calculated. A pre-approval process goes as far as verifying your employment history, credit score, to your spouse’s income report and child support. That’s why this approval report earns you trust with the seller as well as makes you stand out of the crowd.
Must Haves to Get Pre-Approved for a Mortgage
Worth mentioning here is that a pre-approval process might vary from one lender to another depending on their terms of operation. One lender values certain documents than others. Nonetheless, below are several things most lenders would ask:
- Bank statements printouts to show you have been earning money for the last two months.
- Both you and your spouse’s 30-day pay stubs
- Statements to confirm asset owned, these may include bonds or stocks
- And Tax Return forms from the previous two years
Regarding how soon you need to get a pre-approval letter, this should be right before you begin shopping for a house. However, the process is not as complex as it may sound. Once you have the right documentation it can take a few hours to some days depending with your lender.
Well, now you know it’s never just about how much property fits your budget, or where the house should be located. Also, it’s better not to lose the house than feel sorry later and that can only be possible with a mortgage pre-approval letter ready in hand.