Did you know there are 2 different kinds of Mortgage Pre-Approvals?
Saturday Dec 09th, 2017
No, you haven’t read the title incorrectly.
The phrase “Mortgage Pre-Approval” has 2 distinct, different meanings. I always want you to have a preliminary Mortgage Pre-Approval before we look for a residential home for you to purchase. This 1st type of pre-approval, is really a personal financial pre-approval (not on a specific property), based on your income, asset to debt ratio, credit history and report, amount of your anticipated down payment and other criteria. This kind of pre-approval is determined by your credit worthiness and how much of a mortgage the financial institution is willing to give you. And once all this is determined, only then can you know what interest rate you ‘qualify’ for. Plus, then we know how much we can actually spend to purchase a residential home: the total of the amount of the allowable mortgage plus the amount of your down payment.
Securing this 1st Mortgage Pre-Approval for your purchase gives you a 90 day locked-in mortgage rate. If mortgage rates go down, you'll receive the benefit of the lower rate. If mortgage rates increase, your rate will remain the same as your already approved rate. Your mortgage rate won't go up during the 90 day locked-in period. If you want to purchase a home within the next 90 days, and with mortgage rates having just come down, NOW is the time to get your pre-approval and lock-it in. You can initiate discussions with your own financial institution which may or may not offer you the lowest interest rate out there or you can work with one of my trusted Mortgage Brokers who actually has the financial institutions/banks bid for your individual business with the lowest possible mortgage rate available. This 1st Mortgage Pre-Approval is the initial major step towards buying a home or we could be out there blindly looking at real estate properties that are too expensive for us. Or perhaps we have greater buying power than we thought we did. Of course, we don't have to spend the highest amount you're approved for - I always want to find you the most real estate value for the least amount of money. But, the way prices are so high right now, we have to figure out what's really financially in your comfort zone. It's not 'just' a mortgage payment you're committing to, we need to take into account your land transfer fees, moving costs, legal costs plus ongoing home maintenance, property taxes, and utility costs to name a few.
Now for the 2nd Mortgage Pre-Approval. This is approval for a specific property and takes place when you’ve found the residential home you want to purchase, we've made the offer and it’s been accepted by the Seller. Whenever possible, for your benefit, I include a Financing Condition in our Offer. This condition states that we have a certain number of days (usually 3 or 4) to ensure that we can get the required amount of mortgage for the particular home that we've just purchased. During these 3 or 4 days, your financial institution will (most of the time) conduct an appraisal of the home you’ve just bought, to ensure that it’s really worth what we’ve agreed to pay for it. And in all years as a Realtor I've never had a financial institution tell one of our clients that the residential home they’ve just purchased isn’t worth the amount they’re spending. Why, you ask? It’s because I am absolutely diligent in advising you if you’re offering more than the property is truly worth. I always want that appraisal to agree with our purchase price. Once the bank appraisal has come back with a positive report that, indeed, at this purchase price, you will get the mortgage you were approved for in the 1st Mortgage Pre-Approval, we can waive the financing condition towards firming up the purchase of your new home.
One phrase: “Mortgage Pre-Approval” – 2 different meanings/scenarios. If you’d like even more of a detailed explanation or further information just give me a call. I'm always happy to share, with you, as much information as I can. And no real estate question is too small or too large!