Mortgage lenders have different, varied policies, but they share a commonality?a specified set of processes for application approval. A mortgage pre-approval process allows applicants to determine the maximum mortgage amount that the individual can obtain and also estimate mortgage payments.?
The entire pre-approval process is divided into multiple steps. It’s termed mortgage preauthorization or mortgage prequalification. In this process, the finances are checked by the lender. (Viagra) Then, they scour through the documents and determine the maximum mortgage amount and interest rate that the applicant is eligible for. Visit this site to learn more about it in detail.
Also, the applicants need to submit their personal information, necessary documents, and a credit check. Please note that this process doesn’t guarantee approval of the mortgage application!
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Effect of mortgage pre-approvals on rising interest rates in Canada?
The relevance of mortgage pre-approvals has increased owing to the rising interest rates. It allows individuals to understand their borrowing eligibility better while facilitating an interest hold for 90 to 120 days. The rate hold turns out to be a game-changer in times of declining and steady rates.
Individuals with pre-approved mortgages (on a fixed rate) may find themselves in a very fortunate situation, especially when the rate of interest increases. The lender is liable to honour the pre-approved mortgage loan interest rate until its validity.?
Advantages of mortgage pre-approval?
Here are three ways in which mortgage pre-approval can benefit you:
Applicants can know their borrowing power
Individuals need to know their buying power. This will help them better determine their budget for buying a house. You wouldn’t want to find yourself in a situation where you fall in love with a place that falls beyond your buying capacity.?
We must mention that there are other means of arranging the funds. But, keep in mind that a mortgage is an ideal option for buying a property.?
Insurance or protection against increased interest rates
The pre-approved period for most lenders is 120 days. Even if the mortgage interest rate increases, you’ll be in a secure position as you’ll be paying at the hold interest rate.?
If the rates decrease, you will still be at an advantage as you benefit from the lowered rates. It will be a win-win situation for you from almost every perspective.
Security of credit
Preapproval of mortgage means the lender has checked your credit score and reviewed your documents and application.?
This means you can start the property search early and make a purchase offer instantly without having to wait for mortgage loan application approval. This will help you in finding the right deal in time.?
Documents required for mortgage pre-approval
The mortgage broker or lender looks at the assets owned by the applicant, income statement, and debt level during the pre-approval process.?
Applicants are required to submit the following documents for the same:
- Employment proof
- Proof of identification
- Proof that you’re capable of making down payments
- Documents supporting ownership of assets like a farmhouse, car, etc.?
- Documents highlighting financial obligations or debts?
The financial obligations or debts payments may include:
- Spousal or child support
- Monthly credit card payments?
- Credit lines
- Car loans
- Student loans and other debts
Documents to be used as employment proof include:
- Proof of hourly pay rate or current salary?
- Proof of job profile and employment period with the current employer
- In the case of self-employed individuals, assessment notices for the past 24 months?
Plus, you’ll be required to submit your updated bank account/financial statements with the mortgage broker or lender. It helps them determine the individual’s capability of paying the down payment.?
How much time does the mortgage pre-approval process completion take??
Generally, it takes about 30 days or longer to process the request. However, there is a slight possibility of delay under specific circumstances?for example, if the individual has a low credit score or is self-employed.
Your mortgage broker checks and verifies the documents submitted by you to confirm your income, identity, and assets. The maximum time generally goes into arranging the documents needed for mortgage pre-approval.?
The prospective applicant may need to wait for a letter of employment and track down the bank statements which need to be submitted along with the application.?
Besides, the lender or the mortgage broker will need an adequate amount of time to review the application, check the credit file, and find the correct mortgage rate depending on the applicant’s credit history and bank statement.
The applicant should not hurry before signing the mortgage document. Take sufficient time to go through the mortgage application. Do not hurry with the underwriting process either.?
It may take an extra couple of days, but you’d have assured yourself that the mortgage application you have signed is in your best interest. Plus, it also eliminates the possibility of hassles which could crop up later.?
The validity period of mortgage pre-approval?
Mortgage pre-approval validity varies from one lender to another. Typically, you’ll be approved for a period of 90 or 120 days, giving you ample time to look for a home.?
The lender may facilitate the individual with a mortgage pre-approval extension. Note that re-submission of documents is required in this case.
Pro Tip: Consider your financial situation before re-submitting the documents, as it may affect your financial picture.?
Condition when mortgage pre-approval is revoked?
The pre-approval is revoked under the following conditions:
- Change in job
- Purchase of a car
- Taking another loan
- Divorce
To avoid revoking your pre-approved mortgage, avoid making any major purchases or changes to your lifestyle until you get the mortgage funds.
Endnote
Individuals need to understand the mortgage-related terminologies to find the right deal suiting their requirements. A pre-approval or prequalification is a perfect investigatory, especially for homebuyers. It’s a formal process where the lender gives an in-principal commitment.
In a nutshell, mortgage pre-approval provides security against increasing interest rates while giving you the freedom to make a purchase offer on a property of your choice.
