3 Things you need to know about Mortgage Pre-Approvals
Friday Mar 30th, 2018
Before you start shopping for homes, get a mortgage pre-approval. This is important for so many reasons but chiefly because it defines your budget. Shopping before having a budget is a good way to wind up disappointed when the homes you can actually afford don't match up to the homes you first looked at. Here are the three main things you need to know about the mortgage pre-approval process:
1. You'll learn your pre-approval amount
It goes without saying that the primary purpose of a mortgage pre-approval is to determine your budget. This is, of course, a factor of the mortgage limit you qualify for. This is determined by your lender according to a number of factors including your income, existing debt load, and credit score. Generally speaking, you will qualify for a mortgage whose monthly payments are within the limits set by two important ratios: Total Debt Service (TDS) and Gross Debt Service (GDS).
2. You will get a mortgage rate and monthly payment
As part of the pre-approval process, your lender will offer you a mortgage rate and tell you what your monthly payments will be. Your monthly payments are the best way to work out how affordable your mortgage really is. The financial advice gospel is generally to avoid spending more than 30% of your gross income on housing, in order to leave room for lifestyle and savings.
3. A pre-approval is not a guarantee!
This common misconception can sting if it catches you off-guard. So read this carefully and commit it to memory: a mortgage pre-approval is not a guarantee that your mortgage will be advanced when you go to buy a property. The lender still needs to evaluate the property to be purchased and be satisfied with the price and condition. This usually takes the form of an appraisal.