An Important Asset
Mortgage pre-approval shows a homebuyer many things. This includes how much they can afford to pay for their home and the payment connected to different purchase prices. At the same time, it guarantees a mortgage rate for a specific period of time. These features protect the home buyer against possible rate increases.
They are also not obligated to either the mortgage broker or the bank where they received their mortgage pre-approval. There is also no cost. This is the reason why having a pre-approved mortgage is crucial in buying and owning a home.
The First Step
To start the mortgage pre-approval process, an individual must go to either a bank or a financial institution. It is also important to ask around about their mortgage pre-approval process. This is because a number of lenders will reduce their present interest rate when a person knows how to bargain.
If a person is interested in securing mortgage pre-approval, they will discuss a number of things with a mortgage provider. Some of these include their financial strategy, mortgage amount, purchase price, down payment and their individual needs.
Learning is Important
Aside from discussing these topics, it is also important to learn a few things. This includes the available mortgage options like variable and fixed rates. A variable mortgage rate will come with fixed payments. However, the interest rates fluctuate in relation to any changes in the prime rate. If interest rates go up, more of the payment will go towards the interest. If the interest rate goes down, a larger chunk of the payment will go to the principal.
With a fixed mortgage, the interest rate is fixed for a specified time period. This is also known as a mortgage term. This mortgage typically lasts between a minimum of six months and a maximum of 25 years. As time passes, the majority of the mortgage payment will go towards the principal. Additional things that are very important to learn include the different interest rates, amortization, payment options and more.
Meeting the Requirements
After a person has found a pre-approved mortgage from a particular financial institution, they should put in an application. This application includes the offer to purchase. Their real estate representative will help them put the offer together. This application form should contain many details. Some of the details include their name, the vendor’s name and the property address. They must also give the lending company permission to obtain their credit report.
The offer to purchase should also include the price offered. At the same time, it must include the chattels that well be placed in the total purchase price. Other items that the buyer is interested in purchasing along with the house should also be listed. Additionally, it must have a deposit amount, a request for a land survey and the closing day.
Other Important Requirements
The closing day refers to the date that the buyer will take possession of the property. It is usually a maximum of 30 to 60 days from the agreement date. As of this date, the buyer is responsible for utilities, taxes, maintenance and repairs.
The offer to purchase also must include a date when the offer becomes void and null. It must also have home inspection and financing conditions. A home inspection is a condition that allows the buyer to have a professional sales inspector assess the house prior to purchasing it.
The main benefit of home inspection is that buyers can cancel the offer if they uncover something that they do not like. At the same time, they can recover their full deposit. A financing condition is a clause that allows the homebuyer to obtain some form of financing. This financing must be available before the purchase is finalized.
If they cannot obtain financing, they can still cancel the deal and get their deposit back in full. Usually, they should ask for a maximum of seven days to secure some form of financing. This single process may happen several times. It is also common to make an offer, receive a counter-offer and make necessary revisions.
During this process, the mortgage specialist will discuss these requirements. This is to make sure that the home buyer meets these requirements prior to the conditional approval of their mortgage. All of these requirements must be satisfactorily met for their mortgage to be fully accepted.
Preparing for the Pre-Approval
Home owners are under no obligation when they are pre-approved. However, they should make sure that they feel very comfortable with the terms and the amount of their pre-approved mortgage. It is also important to assess all of their personal expenses. This enables them to have some idea of their future financial status.
Mortgage approval is much the same as pre-approval. However, it contains specific details regarding the purchase. Some of these details include the exact purchase price, property taxes and much more. A lot of these details are not found in a pre-approved mortgage. After their provider has all the details, they will approve the mortgage as long as they are satisfied with the property that the applicant is purchasing and that the qualifying criteria are met.
… written by Tim Faye is a mortgage broker from Toronto, ON. He writes for a number of online publications and is somewhat of an authority of all things mortgages. His goal is to educate consumers so that they can make better decisions.