Buying a home is one of the biggest financial decisions you’ll ever make, and understanding the mortgage process is essential to making that dream a reality. Edmonton’s real estate market is competitive, so getting pre-approved for a mortgage is an important first step that can help you stand out, make more informed decisions and ensure you’re financially prepared for homeownership.
We’ve put together a comprehensive guide, walking you through the process step-by-step, explaining why it’s important, and giving you tips on how to make the process as smooth as possible. Whether you’re a first time homebuyer or someone looking to refinance, this guide will help you navigate the steps and set you up for success.
What is a Mortgage Pre-Approval?
A mortgage pre-approval is the process through which a lender assesses your financial situation and determines how much they are willing to lend you to buy a home. It’s a critical first step in the home-buying process because it gives you a clear understanding of your budget. It will also help streamline your search for your dream home and will show the seller that you’re a serious buyer.
During the pre-approval, the lender will examine various aspects of your finances, such as your credit score, income, debts and down payment. Based on all these factors, they will provide you with a written commitment for a specific loan amount, interest rate, and terms, which is typically valid for 60 to 120 days.
Why Mortgage Pre-Approvals Matter
While getting pre-qualified for a mortgage might give you a rough idea of what you can afford, a pre-approval is more thorough and gives you a clearer financial picture. Here’s why getting pre-approved is an extremely important step in the home buying process.
1. Know Your Budget
Getting pre-approved for a mortgage helps you understand exactly how much you can borrow, which means you’ll be able to narrow down your home search to within your budget. This will help you save time and prevent you from falling in love with homes that are outside your financial reach.
2. Stand Out in a Competitive Market
In Edmonton’s real estate market, homes can move quickly, especially in desirable neighborhoods or price ranges. Sellers are more likely to take your offer seriously if you’ve been pre-approved, as it shows that you are financially capable and committed to make the purchase. It can also give you an edge over other buyers who might still be in the early stages of their mortgage process
3. Lock in Your Interest Rate
When you get pre-approved, lenders will provide you with an interest rate based on your financial profile. Locking in an interest rate before you begin house hunting can protect you from potential rate hikes while you’re looking for a home. If rates rise during the pre-approval period, you’re often guaranteed the original rate.
4 Faster Closing Process
Because the lender has already assessed your finances, the actual mortgage application process will be much faster once you’ve chosen a home. This can speed up your closing process, which is beneficial in a fast-moving market.
The Step-by-Step Process of Mortgage Pre-Approval
Now that we’ve gone over why getting pre-approved is important, let’s walk through the steps involved in the process so that you can be fully prepared.
Step 1: Review Your Financial Situation
Before getting pre-approved, take a close look at your finances to ensure you’re in a strong position to be approved, This includes:
–Credit Score: Lenders typically prefer a score of 620 or higher, but a higher score will help you secure a better interest rate
-Debt-to-income Ratio: Lenders will assess how much of your income goes toward paying off existing debts. In general, a ratio of 40% or lower is ideal, though some lenders may allow higher ratios.
-Down Payment: Most lenders require a down payment of at least 5% for home under $500,000 and 10% for homes priced about that. A larger down payment can help you secure a better rate and avoid private mortgage Insurance (PMI)
-Income and Employment: Lenders will need to verify your income, employment history, and job stability, which means having pay stubs, tax returns, and other financial documents ready.
Step 2: Choose the Right Lender
Not all lenders offer the same terms, interest rates, or fees. Our expert team of mortgage brokers will work with many different lenders to ensure you’re getting the best rate possible. Getting pre-approved with a lender that offers competitive rates and favourable terms can save you money in the long run.
Step 3: Submit Your Application and Documents
To submit your application, you’ll need a variety of financial documents, including:
– Proof of income ( pay stubs, tax returns, bank statements)
– Proof of assets ( savings accounts, RRSP statements, etc)
– Personal identification
– Details of existing debts ( credit cards, loans, etc)
– A list of your current living expenses
Step 4: Wait for Approval
Once you’ve submitted all your documents, the lenders will conduct a thorough review of your financial situation. This process usually takes anywhere from a few days to a week, depending on your lender. They will check your credit score, assess your debts and income, and verify your down payment and assets.
Step 5: Start House Hunting
With your pre-approval in hand, it’s now time to start hunting for your dream home! You’ll have the confidence of knowing what you can afford and be ready to make an offer when you find the perfect home!
A pre-approval is an essential step in the home-buying process, especially in a fast-moving market like Edmonton’s. It gives you a clear picture of your budget, strengthens your position as a buyer, and allows you to move quickly when you find the right home.
With many years of experience in the Edmonton real estate market, our team is ready to help guide you through the pre-approval process and make it as stress free as possible. If you’re ready to start your home-buying journey, contact us today and get one step closer to your dream home!
Have any questions? Contact the team at Steven Murdoch Mortgages today!
