When we purchase a home, there is always a lot of paperwork involved. But let’s face it, most of us don’t enjoy that part. However, all the documents we fill out are immensely important. For example, one of the most important forms you’ll need is the pre-approval letter when applying for a mortgage. It tells the mortgage company about your financial situation and makes for a smoother process.
What Is a Pre-Approval Letter?
Basically, a pre-approval letter is a letter lenders give to the potential homebuyer in advance. It’s a pre-approval of the final mortgage amount that the lender can give. This letter highlights how much money a potential homebuyer can get based on their income and assets, among other things. It helps homebuyers figure out how much they can spend on a home once they buy it.
How the Amount is Determined for a Pre-Approval Letter
The amount of a pre-approval letter is based on the borrower’s income, assets, and other factors. Things like your credit score, ability to pay the mortgage, or your occupation will all be taken into consideration.
Pre-approval amounts can vary depending on the lender and the type of loan. Typically, a pre-approval letter will be in the ballpark of the amount of the mortgage loan that you’ll be getting.
Why Is It Important to Have a Pre-approval Letter?
Pre-approval letters make it easier to complete the financial aspects of purchasing a home. The letter establishes the borrower’s creditworthiness and shows the lender that they’re a good candidate for the loan. It also helps you figure out how much you can spend on a home.
When a buyer has a lot of stress weighing on them, pre-approval letters can help by giving them a clear idea of what their financial situation is.
How to Get Pre-Approved for a Mortgage
Here are some steps to get pre-approved for a mortgage:
- Contact a few lenders to see who will give you the best rates and options for your mortgage.
- Get pre-qualified for a mortgage.
- Once you get pre-approved, the lender will let you know what your maximum mortgage amount will be.
- Discuss the mortgage options with your real estate agent.
- Pick a home and make an offer. (The lender will ask for a copy of your pre-approval letter).
If you’re pre-approved for a mortgage, there are some things you need to know. Once you’re pre-approved for a mortgage, you still have to apply for the mortgage. You’re only pre-approved because this pre-approval is subject to a number of factors. Your offer price, the appraised value of your home, or any other conditions may affect your approval.
Also, make sure that you don’t sign anything where you agree to borrow more than you’re pre-approved for. You can’t sell your home for more than the assessed value.
Get Pre-Approved Today
Getting pre-approved for a mortgage is a great way to ensure that you can afford the home you want to buy. The pre-approval letter shows the mortgage lender that you’re a good candidate for the loan and helps you determine how much you can spend on a home. Pre-approval letters can be really helpful when you’re buying a home!
Let us help you with your mortgage pre-approval letter in Ottawa. Here at Ottawa Mortgage Services, we provide our services to first-time homebuyers, self-employed individuals, and commercial clients. Get in touch with us!