One of the questions we get asked most often is, ‘what is a mortgage pre-approval?’
Simply put – When buying a home, a PRE-APPROVAL will determine the purchase price you can afford and helps you work within your budget.
When you get pre-approved for a mortgage, you’ll find out 3 things:
- The maximum amount you can afford to spend on a home
- The monthly mortgage payment associated with your maximum purchase price
- What your mortgage rate will be for your first mortgage term
Applying for a mortgage pre-approval is free and it doesn’t commit you to one single lender. However, getting pre-approved does guarantee that the mortgage rate you are offered by a lender will not change for 3-4 months. By “locking in” your rate, you’re protected if interest rates rise while you’re shopping for a home. If interest rates go down during this time, your lender will honour the lower rate.
Why Get Pre-approved for a Mortgage?
Getting pre-approved for a mortgage helps you in several ways:
- It saves time in your home search because you’ll only look at homes in your price range.
- Getting pre-approved is also a signal to your real estate agent that you’re serious about buying, and you’ll receive faster more targeted service.
- Finally, when it comes time to make an offer on a home, the fact that you are pre-approved signals to the seller that you should have no problem financing the purchase, which will improve your chances especially in a competitive offer situation.
Don’t forget that if interest rates fall while you are locked in, your lender will honor the lower rate.
Hope you found this video helpful – and if you’d like to learn more about HOW a pre-appproval works, read our next blog here that will identify the 3 ways a bank or lender determines your pre-approval amount.