In the movies, making dreams come true boils down to luck, along with a lot of help from talented writers and producers. In the real world, turning your dreams of buying a home into reality depends on strategic planning and expert advice. Being proactive means you’re the one in charge of writing the script!
What’s the first step in this epic adventure? It starts long before visiting homes for sale or even making your list of wants and needs. First, you want to make sure your financing is on solid ground. To do that, many savvy home buyers start by getting a pre-approval.
What Is a Pre-Approval?
Buying real estate can seem a lengthy process, especially when you’re in the beginning stages. However, once you get going, everything can fall into place very quickly. You’ll want to arrange your financing well in advance so you’re empowered to act when you find a home you love.
A pre-approval means you’ve already gone to the bank or mortgage broker, filled out an application form, and received a letter detailing how much you will be able to borrow. When you have this letter in hand before you even begin searching, you don’t risk losing the home because your financing took too long to arrange.
You can start placing offers with confidence. Best of all, sellers love it when a potential buyer has a pre-approval. It’s less risky for them since it reduces the chance of the sale falling because the buyer’s financing fell through. These are just a few reasons a pre-approval is a potent negotiating tool for serious home buyers.
Are you ready to begin your search for a house in Peterborough or Kawartha Lakes? The resources below will give you a solid foundation:
- A Guide to Peterborough’s Luxury Housing Market
- Is It Better to Buy or Sell First in Peterborough?
- The Challenges of Buying a Home in Kawartha Lakes and How to Overcome Them
Is a Pre-Qualification the Same as a Pre-Approval?
Pre-qualification is another term you’ll likely encounter once you’ve decided to start your house hunt. There can be a lot of confusion between pre-qualification and pre-approval, which are often used interchangeably. The idea behind them is similar. The difference is in the level of commitment.
- A pre-qualification is a very quick process that provides an estimate of how much you can borrow based on your income, the value of your assets, and how much debt you have. The lender does not perform a credit check, and you can typically get an answer within minutes. However, it’s critical to remember that this amount is only an approximation, and the final amount may change.
- A pre-approval requires filling out a mortgage application and the lender will perform a credit check. You may have to wait a few days or a couple of weeks before getting your answer. Once approved, you have a very accurate estimate of how much you can borrow, which allows you to create a realistic budget. Keep in mind, however, that this amount is not a guarantee. If your income or debt ratio changes, the lender may reduce the loan or not approve it after all. This is why your real estate agent will instruct you to refrain from taking on any more debt or making large purchases whenever possible.
When and Why to Apply
Does it matter whether you choose to get a pre-approval or pre-qualification since they are so similar in nature? Your decision to get either primarily depends on where you are in your home-buying journey.
- If you’re not sure of your next steps or even if you’re going to purchase at all, a pre-qualification can be better. It’s faster and doesn’t affect your credit score since the lender isn’t checking your history. This is a good first step towards buying a house, but remember that it only provides a general estimate of how much you will qualify for.
- A pre-approval is for those who intend to buy a home within the next few months. Though it is not a guarantee, you can reasonably expect to qualify for that amount once you’re ready to purchase. Plus, you can lock in the most favourable interest rate between when you get your pre-approval and the next 90 to 120 days. If rates increase, you’re protected. If rates fall, you’re entitled to the lower amount. As a serious buyer, there are many benefits to getting pre-approved in advance!
Why buy your next home in Peterborough? Here are a few things that residents love:
- All About Peterborough’s Stunning Green Spaces
- Is Peterborough Dog Friendly?
- Our Favourite Places to Skate in Peterborough and the Kawarthas
Your Pre-Approval Checklist
How do you go about obtaining your pre-approval now that you understand its value when buying your next home? The following guidelines will help:
- Protect your credit rating. A mortgage involves a significant amount of money, and the lender will want to protect their interests first and foremost. If you have unpaid debt, it might be worth your while to contact your creditors to make an arrangement. Plus, the less debt you have, the more likely the lender will approve you.
- Work with a local real estate team. Nothing will make buying a home easier and less stressful than the support of an expert in the industry. With an experienced Realtor® by your side, you’ll have constant guidance so you know what you need to do at each step.
- Organize your documents. Before visiting your lender, be sure that you have government photo identification, proof of address, and proof of income. You may also be asked to provide proof of your down payment, especially if a relative is gifting you the funds.
- Contact a mortgage broker. You have options beyond the banks when financing your home. A mortgage broker can often get you the lowest rate and best terms by shopping different lenders all at once. If you’re self-employed or have bruised credit, they may be able to find alternative financing.
Do you want to know more about buying a home in Peterborough or The Kawarthas? We are here to help with everything you need. Reach out today at team@jeffandkatie.ca or call 705-243-9797 for more information.
