With rising interest rates, now is a great time to find and buy a home. When you search for a home, get pre-approved for a loan to ensure you can afford to take on the risk of home ownership.
In a buyers market, the more advantages you may get, the better your chances of securing your ideal property.
What is a Mortgage Pre-Approval?
A mortgage pre-approval document is mainly signed by the bank or mortgage broker. With it, you are guaranteed to receive a loan for purchasing a home at a specific interest rate, amount, and term.
Besides income and assets, lenders are interested in your debt/credit-to-income ratio. You should make sure you are in good standing with your mortgage company before you start shopping for a house.
Here are five ways why getting one can be beneficial for you:
1. Helps You Buy Now and Lock in a Lower Rate
Mortgage rates can go up and down. If you pre-approve a loan, you can buy now before rates go up; then, you can lock your rate in with a 30-day commitment fee or a nominal fee.
Moreover, you can lock in your rate for up to 10 years. If you wait to get pre-approved until the last minute, you may be less likely to lock in a low rate.
2. Helps You Avoid a Higher Interest Rate
If you are not a ʻqualified buyer,’ you may be required to pay a slightly higher interest rate. Furthermore, ʻqualified buyers’ may be charged a higher interest rate if they are not pre-approved.
If you do not have enough cash for your down payment and closing costs, you may not be able to obtain a loan. If you are approved for a loan and can’t close, you will have to pay a fee.
However, if you are a ʻqualified buyer,’ it may not be as easy to get a loan as you think. A bank will ask for documentation of your down payment and ample cash for closing costs. As a first-time homebuyer, your lender may require a larger down payment and more cash for closing costs.
3. Helps Negotiate a Better Deal
Negotiating a better price is simpler if you have previously been pre-approved for a loan and can show your sellers your letter. Your vendors will be more likely to negotiate on price if they know they can count on you to pay them soon after you are “approved.”
On the other hand, ‘unapproved’ buyers may be required to pay a higher price at closing. If your sellers know you are committed to purchasing the home, they will be more likely to help you with a lower price.
4. Gets the First Option to Buy
By having a pre-approval letter, you can get your offer accepted first. If a house receives many requests, only the pre-approved buyers will be allowed to make an offer.
When you are ʻapproved,’ they will accept your offer first. If the seller is one of the ʻapproved’ sellers, they will usually ask for a higher price or a lower deposit.
Furthermore, ʻapproved’ sellers might have a higher market demand. Since they have been pre-approved, they may have a faster time selling their home. As a result, they might ask for a higher price.
5. Helps Avoid Foreclosure
Foreclosure is more likely when buyers cannot make their mortgage payments, but they can take measures to avoid it. A ‘short sale’ is one option.
Your house or property may be worth less to the bank than it currently is. You might be able to work out a better deal with the bank.
You should, however, be prepared to get an ‘appraisal’ of the property’s worth. Another option is negotiating a better agreement with the bank or selling the property before foreclosure.
Don’t put off being pre-approved for a loan. You might be shocked by how many individuals try to sell their homes before getting pre-approved for a loan. Remember, you are more likely to obtain a better bargain on your ideal house if pre-approved.
At Ottawa Mortgage Services, we realize that you’re seeking a mortgage services specialist who will examine your financial condition and help you get the best mortgage available. We’ll offer you several mortgage options, clarify what paperwork is required to qualify for your mortgage, negotiate with lenders on your behalf, and ensure you’re properly taken care of throughout the process. Take the first move, reach out, and let us know how we can help you!