MORTGAGE Blog & ARTICLES
Things You Need To Know To Be Pre-Approved For A Mortgage
While idly shopping for a home may be pleasant, serious homebuyers need to start the process in a mortgage broker’s office, not an open house. Potential buyers benefit in several ways by consulting with a mortgage broker and obtaining a pre-approval letter.
First, they have an opportunity to discuss mortgage loan options and budgeting with their mortgage broker.
Second, their mortgage broker will check their credit and alert the would-be buyers to any problems.
Third, the buyers learn the maximum they can borrow and therefore have an idea of their price range.
However, all buyers should be careful to estimate their own comfort level with a housing payment rather than immediately aiming for the top of their spending ability. Lastly, home sellers expect all buyers to be pre-appoved and are more willing to negotiate with people who have proof that they can obtain financing.
Pre-qualification Vs. Pre-approval
A mortgage pre-qualification can be useful as an estimate of how much you can afford to spend on your home, but a pre-approval is much more valuable because this means the lender has actually seen your credit and verified your documentation to approve a specific loan amount (usually for a particular time period such as 90 days). Final mortgage approval occurs when you have an appraisal done and the mortgage is applied to a particular property.
1. Proof of Income
“No verification” or “no documentation” loans are a thing of the past, so all borrowers need to be prepared with current letter of employment, recent pay stubs to show the income as well as your year to date income and Notice of Assessment (NOA) from the past two years, recent pay stubs that show income as well as year-to-date income.
2. Proof of Assets
You will need to present bank statements and investment account statements to prove that you have funds for the down payment and closing costs, as well as cash reserves. A CMHC insured mortgage requires a down payment of as low as 5% of the cost of the home, while conventional home loans require 20%. If you receive money from immediate family to assist with the down payment, you will need a gift letter to prove that this is not a loan.
3. Good Credit
Most lenders today reserve the lowest interest rates for customers with a credit score of 720 or above. Below that, borrowers may have to pay a little more in interest or pay additional discount points to lower the rate. CMHC mortgage guidelines have tightened in recent years, too, so that borrowers with a credit score below 620 are required to make a larger down payment. Most lenders require a credit score of 640 or above in order to approve an CMHC approved insured mortgage. Mortgage brokers will often work with borrowers with a low or moderately low credit score and suggest ways they can improve their score.
4. Employment Verification
Your lender will not only want to see your pay stubs, but is also likely to call your employer to verify that you are still employed and to check on your salary. If you have recently changed jobs, a lender may want to contact your previous employer. Lenders today want to make sure they are loaning only to borrowers with a stable employment. Self-employed borrowers will need to provide significant additional paperwork concerning their business and income. Generally last two years T1 Generals, Notice of Assessments (NOAs) and proof of active business.
Your mortgage broker will need to copy your driver’s license and will need your Social Insurance Number (SIN) and your signature on a mortgage application allowing your mortgage broker to pull a credit report. Be prepared at the pre-approval session and later to provide (as quickly as possible) any additional paperwork requested by the lender. The more cooperative you are, the smoother the mortgage process will be.
The Bottom Line
Consulting with a mortgage broker before you start the home buying process can save a lot of heartache later, so gather your paperwork or print some recent statements off your online bank accounts before your pre-approval appointment and before you begin house hunting.
You can always call us at 1-888-882-0786 to discuss your options.
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