Mortgage Approval or House Offer – what Should Come First?

There is a practice called mortgage pre-approval, and it comes with many benefits. It can also pose a few risks. Although the topic is vast, and can hardly be covered in its entirety on the span of a single article, we will attempt to give you a detailed examination of those considerations.

Mortgage pre-approval

Let’s first examine the “traditional” way of getting a mortgage approval.

  1. You contact a Realtor and search for a property to purchase.
  2. Once you’ve found a house you want to buy, you seek out a Lender.
  3. Having secured the Mortgage loan, you close the deal and buy the property.

There is another way to do this, however. One that may expedite the closing process and save you the risk of finding a property only to take too long securing the loan. This delay may give another buyer the advantage and lose you the opportunity to purchase the property of your choice. The way to avoid it is to go for mortgage pre-approval.

What is Mortgage Pre-approval?

Mortgage Pre-approval determines the property price range that you can afford. It helps narrow down the home search and allows you to budget for it. Once you have a pre-approved loan, you will also waste no time on the home search, as you will be shopping only within your pre-determined budget. Once you get pre-approved for a mortgage, you will be able to cross all the t’s and dot all the i’s. Here are a few important benefits:

  • It determines the maximum amount that you can afford to spend on a property
  • You will know the monthly mortgage payment associated with the maximum price
  • Know in advance what the mortgage rate will be during the first mortgage term

Another good thing about the process of pre-approval is that it is completely free and does not commit you to a single lender, while guaranteeing that the rate will not change in the next 120-160 days. Locking into the mortgage rate, you are protected from rising interest rates, a problem that we all know too well in Montreal and other provinces, where Mortgage rates can change drastically from one month to the next.

Now that this is established, let’s give you some more advice that will help you make a prudent choice and save you from possible mistakes:

  1. Not all pre-approvals work in the same way. Some lenders will not check if you actually qualify, and will only provide a rate guarantee to be approved later on. There is nothing more disappointing than to be turned down for a loan after being “pre-approved”. Make sure your lender actually checks your documents and really gets you pre-approved.
  2. Failing a pre-approval is not impossible. After you get pre-approved, beware of adding debt, changing jobs, co-signing with someone and missing payments. Those things might damage your credit score and void your pre-approval.
  3. Time your pre-approval carefully. Since pre-approval locks your mortgage rate, it is often prudent to wait until the rates are flat or going down, and time your pre-approval submission accordingly.
  4. 4.You can reset the pre-approval. This is useful when you see the mortgage rates are staying low or declining while you are still shopping. Reset the pre-approval every 60 or so days to extend the window-frame of the home search. If the lender restricts resets, it may be a good idea to look for another.

We hope you found this information helpful. Feel free to contact us at Best Mortgage Montreal for more information and assistance in finding a good mortgage rate in Quebec and Montreal area. We are here for you.

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