While it is not mandatory, mortgage pre-approval is strongly recommended when buying a home, especially for first-time buyers. It offers several advantages that can save time and money. Here are the top five.
1. Know your borrowing capacity
Mortgage pre-approval is an attestation by a lender that indicates the maximum amount that they agree, under certain conditions, to lend you for the purchase of a home. It allows you to know how much money you can borrow right from the outset.
2. Plan your monthly payments
By knowing your borrowing capacity, you can determine what your monthly mortgage payments will be, depending on the down payment you plan on making. If the payments seem too high, you can decide to lower the price you are willing to pay for a home or increase your down payment.
3. Simplified property search
By having a good understanding of your borrowing capacity and the monthly payments you will have to make, the search for properties with your broker will be much easier. You will save time by avoiding visiting homes that are too expensive and you will be able to focus your efforts on those that fit within your budget.
4. More credibility as a buyer
With a mortgage pre-approval in hand, you are announcing to the various stakeholders in the transaction that you are a serious buyer and that your financial situation is sound. This status could give you added negotiating power on a promise to purchase and, in the case of multiple offers on a same property, it can give you an advantage over other buyers who have not been pre-approved.
5. Interest rate protection
By obtaining mortgage pre-approval, you also get a guaranteed mortgage rate and, depending on the lender, this rate can be guaranteed for a period of up to several months. It is extremely beneficial if the economic environment seems favourable to a rate increase.
Obtaining mortgage pre-approval is free and does not commit you to anything. Why would you not take advantage of it?